First American plunges most since 2011 on data breach concerns
First American Financial Corp. tumbled the most in nearly eight years amid concerns that a security flaw at the title insurer may have allowed unauthorized access to more than 885 million records related to mortgage deals going back to 2003.
Earlier, the company said that "at this time there is no indication that any large-scale unauthorized access to sensitive customer information occurred." First American has curbed some access and hired an outside forensic firm to assess the damage.
Compass Point slashed its price target on the stock to a Street-low of $55.50 from $62, as First American likely faces increasing costs. Analyst Chris Gamaitoni anticipates more spending for actions like reviewing the vulnerability and providing for greater protections.
Meanwhile, several analysts defended the company. There's no sign that anyone other than cybersecurity expert Brian Krebs, the author of a Friday article about breach, and his source have "inappropriately accessed the documents on the database," Barclays' Mark DeVries wrote. That means "calling this a leak of hundreds of millions of documents could prove to be a gross mischaracterization of the situation."
Barclays was reassured by a conversation with First American executives on Tuesday morning. They said that "as soon as the journalist informed them of the weakness, the database was shut down," and the issues have been fixed, DeVries wrote. The company will "incur a few million dollars of professional services as a result of this, and may need to revisit some of its technology spend, but unless a material unauthorized accessing of customer information is discovered, the company would not anticipate incurring meaningful costs for credit monitoring."
KBW also spoke with First American executives on Tuesday, and concluded that "the impact of this issue is likely to be limited," analyst Bose George wrote. "While the shares could be weak on this news, our current expectation is that the earnings impact is likely to be limited."
Piper's Jason Deleeuw wrote that while the data security incident is unfortunate, "we are encouraged that it does not appear to be large-scale and systemic." He reiterated his buy-equivalent rating on the stock due to "an improving home purchase/refinance volume environment on lower interest rates and strong economic fundamentals."