Greater Expectations for O.C. Title Insurance Firms

Business is looking brighter for title insurance companies, including two Orange County titans, as speculation grows that the Federal Reserve may cut interest rates soon.

Title insurance companies rely on real estate transactions for revenue, and if interest rates fall, mortgage refinancing activity “quite naturally goes higher” and will push the companies’ earnings higher, said Michael Grondahl, a US Bancorp Piper Jaffray analyst.

Grondahl has raised his fourth-quarter per-share earnings estimate on Irvine-based Fidelity National Financial Inc., the nation’s largest title insurer, to 47 cents from 44 cents and his estimate for 2001 to $2.50 from $2.25.

He also raised estimates on Irvine rival First American Corp. to 28 cents from 23 cents for the fourth quarter and to $1.55 from $1.15 for 2001.

Shares of both companies surged Monday to 52-week highs. Fidelity National climbed to $35.63 before closing at $34.75, up $3.69. The stock traded as low as $11.63 in March. First American’s stock moved up to $32 a share before closing at $31.94, up $3.19. The stocks trade on the New York Stock Exchange.

According to both Grondahl and Fox-Pitt Kelton analyst Chad Yonker, title insurance stocks are among the most interest-rate sensitive on the market and have been depressed as the Fed has raised interest rates over the past year.

For example, Fidelity National traded below $20 until the beginning of September.