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Heritage Insurance Stock Near 52-Week High: Time to Buy?
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Shares of Heritage Insurance Holdings, Inc. (HRTG - Free Report) closed at $16.24 on Tuesday, near its 52-week high of $16.55, after having gained 149.2% year to date. Shares outperformed the industry, the Finance sector as well as the Zacks S&P 500 composite index in the same time frame.
This super-regional U.S. property and casualty insurance holding company delivered an earnings surprise in three of the last four quarters, while missed in one. Prudent underwriting execution and rate adequacy initiatives pursued over the last three years are expected to drive its earnings ahead.
HRTG shares are trading well above the 50-day moving average, indicating a bullish trend. Shares are trading near the high end of its 52-week range.
HRTG Price Movement vs. 50-Day Moving Average
Image Source: Zacks Investment Research
Optimistic Analyst Sentiment for HRTG
Two analysts covering the stock have raised estimates for 2024 and 2025 over the past 30 days. The consensus estimate for 2024 and 2025 has moved 33.1% and 26.7% north, respectively, in the past 30 days.
The Zacks Consensus Estimate for 2024 implies a 10.3% year-over-year increase, while the same for 2025 suggests an 18.0% increase.
Heritage Insurance’s Growth Strategy
HRTG’s growth strategy involves a focus on rate adequacy and selective profit-oriented underwriting criteria. Restricting new business in over-concentrated markets or products should drive profitability. It has stopped writing new personal lines policies in Florida and the Northeast, given the waning profitability of the book of business, coupled with tightening reinsurance markets in December 2022.
No single state accounts for more than 27.3% of HRTG’s total insured value. The insurer believes this selective diversification helps in managing volatility and ensures long-term stability.
However, as the company focuses on selective underwriting, there has been a decline in policy count, though average premiums per policy increased. HRTG expects the headwind from declining policies to begin to moderate over the next few quarters.
The excess and supply (E&S) business is another growth lever for Heritage. Premiums in the second quarter of 2024 skyrocketed 177% year over year banking on business strength in California, Florida and South Carolina. HRTG stated that it will consider and evaluate growth opportunities in a greater number of states.
Heritage Insurance has a solid reinsurance program in place that shields the balance sheet from erosion, particularly given coastal exposure to hurricanes and other severe weather events. The insurer expects a substantial reduction in in ceded premium ratio given a combination of improvements in the reinsurance program from a cost and structure standpoint and growing gross premiums earned.
Heritage Insurance’s capital management seems prudent. While the insurer suspended dividend payments to strengthen its financial position and support long-term growth initiatives, it also diverted capital toward technology and to the segments that have the potential to yield more profits.
HRTG’s Return on Capital
Return on equity in the trailing 12 months was 26.3%, higher than the industry average of 8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Image Source: Zacks Investment Research
Its return on invested capital (ROIC) has been increasing for quite some time. This reflects RGA’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 17.2%, higher than the industry average of 6.1%.
Image Source: Zacks Investment Research
HRTG Shares Are Expensive
The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 1.94, higher than the industry average of 1.60. It has a Value Score of A. Back-tested results have shown that stocks with a solid Value Score and a favorable Zacks Rank are the most attractive and their returns are better.
Image Source: Zacks Investment Research
Shares of other insurers like NMI Holdings (NMIH - Free Report) , MGIC InvestmentCorporation (MTG - Free Report) and Radian Group (RDN - Free Report) are also trading at a multiple higher than the industry average.
Conclusion
HRTG’s focus on growing its commercial residential business organically, ramping up E&S business, improving pricing, increasing top line, expanding margins and delivering strong earnings bodes well for growth. Despite its expensive valuation, given the positive analyst sentiment and its growth prospects, the time appears right for potential investors to bet on this Zacks Rank #1 (Strong Buy) insurer. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Heritage Insurance Stock Near 52-Week High: Time to Buy?
Shares of Heritage Insurance Holdings, Inc. (HRTG - Free Report) closed at $16.24 on Tuesday, near its 52-week high of $16.55, after having gained 149.2% year to date. Shares outperformed the industry, the Finance sector as well as the Zacks S&P 500 composite index in the same time frame.
This super-regional U.S. property and casualty insurance holding company delivered an earnings surprise in three of the last four quarters, while missed in one. Prudent underwriting execution and rate adequacy initiatives pursued over the last three years are expected to drive its earnings ahead.
Heritage Insurance Outperforms Industry, Sector & S&P YTD
Image Source: Zacks Investment Research
HRTG Trading Above 50-Day Moving Average
HRTG shares are trading well above the 50-day moving average, indicating a bullish trend. Shares are trading near the high end of its 52-week range.
HRTG Price Movement vs. 50-Day Moving Average
Image Source: Zacks Investment Research
Optimistic Analyst Sentiment for HRTG
Two analysts covering the stock have raised estimates for 2024 and 2025 over the past 30 days. The consensus estimate for 2024 and 2025 has moved 33.1% and 26.7% north, respectively, in the past 30 days.
The Zacks Consensus Estimate for 2024 implies a 10.3% year-over-year increase, while the same for 2025 suggests an 18.0% increase.
Heritage Insurance’s Growth Strategy
HRTG’s growth strategy involves a focus on rate adequacy and selective profit-oriented underwriting criteria. Restricting new business in over-concentrated markets or products should drive profitability. It has stopped writing new personal lines policies in Florida and the Northeast, given the waning profitability of the book of business, coupled with tightening reinsurance markets in December 2022.
No single state accounts for more than 27.3% of HRTG’s total insured value. The insurer believes this selective diversification helps in managing volatility and ensures long-term stability.
However, as the company focuses on selective underwriting, there has been a decline in policy count, though average premiums per policy increased. HRTG expects the headwind from declining policies to begin to moderate over the next few quarters.
The excess and supply (E&S) business is another growth lever for Heritage. Premiums in the second quarter of 2024 skyrocketed 177% year over year banking on business strength in California, Florida and South Carolina. HRTG stated that it will consider and evaluate growth opportunities in a greater number of states.
Heritage Insurance has a solid reinsurance program in place that shields the balance sheet from erosion, particularly given coastal exposure to hurricanes and other severe weather events. The insurer expects a substantial reduction in in ceded premium ratio given a combination of improvements in the reinsurance program from a cost and structure standpoint and growing gross premiums earned.
Heritage Insurance’s capital management seems prudent. While the insurer suspended dividend payments to strengthen its financial position and support long-term growth initiatives, it also diverted capital toward technology and to the segments that have the potential to yield more profits.
HRTG’s Return on Capital
Return on equity in the trailing 12 months was 26.3%, higher than the industry average of 8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
Image Source: Zacks Investment Research
Its return on invested capital (ROIC) has been increasing for quite some time. This reflects RGA’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 17.2%, higher than the industry average of 6.1%.
Image Source: Zacks Investment Research
HRTG Shares Are Expensive
The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 1.94, higher than the industry average of 1.60. It has a Value Score of A. Back-tested results have shown that stocks with a solid Value Score and a favorable Zacks Rank are the most attractive and their returns are better.
Image Source: Zacks Investment Research
Shares of other insurers like NMI Holdings (NMIH - Free Report) , MGIC Investment Corporation (MTG - Free Report) and Radian Group (RDN - Free Report) are also trading at a multiple higher than the industry average.
Conclusion
HRTG’s focus on growing its commercial residential business organically, ramping up E&S business, improving pricing, increasing top line, expanding margins and delivering strong earnings bodes well for growth. Despite its expensive valuation, given the positive analyst sentiment and its growth prospects, the time appears right for potential investors to bet on this Zacks Rank #1 (Strong Buy) insurer. You can see the complete list of today’s Zacks #1 Rank stocks here.