It was another quiet week of holiday trading for insiders, making the list of candidates rather skinny. Fitting, considering half the country’s New Year’s resolutions have something to do with dropping a few extra stay at home COVID pounds. Who doesn’t have the COVID 5-10?
While losing some weight is the goal for many Americans, losing money isn’t the idea when insiders buy. So when Fidelity National Financial, Inc. (FNF) director John Rood bought more than $1 million of the financial services stock, we took notice.
The director has not been an active trader of FNF stock, but his previous million-dollar trade proved to be timely and profitable. In October 2018, Rood purchases 31,200 shares of FNF at $32.51. At the time, Fidelity was trading near a 52-week low. A value play. (1)
After a brief blip lower, the insurance company’s stock price pretty much went straight up, peaking at $47.75 in late November 2019. (2) That’s a 46.88% return not including dividend. Add in the current 3.68% dividend, and Rood had a total return of more than 50% in 13-months.
Prior to the COVID crash, he did step in and buy $610,000 at $40.71. That’s more of a tough call and we’ll give him a mulligan for that buy. Nobody could have expected what was to come from COVID. Today, the picture on COVID is far less muddled, vaccines are available, and the healthcare community has a better sense of what works and what doesn’t.
Based on some valuations, it appears Rood might see value in Fidelity National Financial’s shares, again. The typical company in the industry trades at 2.1 times book value (P/B) compared to 1.58 for FNF; the average industry price to sales (P/S) ratio is 2.1 versus 1.16 for FNF; the industry has a price to earnings ratio of 15.8 against Fidelity’s 9.2.
For most of these metrics, FNF has room to move closer to the industry norms. In the last half-decade, investors awarded Fidelity National an average P/E of 13.97 and an average P/B ratio of 1.9. At the same time, the typical P/B number was 1.29 but did reach as high as 1.69.
If we apply Fidelity’s five-year valuation average to the Wall Street’s 2021 outlook for $10.1 billion in sales and $4.25 per share in profits (3), we arrive at the following target prices $44.37 and $59.37, respectively. Price to book is the other measuring stick, but it’s hard to project P/B values. So, we’ll stick with current $24.32 book value and multiply it by FNF’s five-year number of 1.9 to come up with $46.21.
Overview: No matter which way we look at Fidelity National Financial, Inc. (FNF), shares appear to offer investors total returns ranging from 17.19% to 55.6% based on FNF’s current price of $39.09. Director John Rood’s previous $1 million buy suggests FNF could return to its typical valuations.
Fidelity National shares could be appropriate for investors looking to invest in the insurance industry with a little above average taste for risk.
1 – https://www.secform4.com/insider-trading/1465185.htm
2 – https://finance.yahoo.com/quote/FNF/history?period1=1546473600&period2=1578009600&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true
3 – https://finance.yahoo.com/quote/FNF/analysis?p=FNF