Shares of Heritage Insurance Holdings, Inc. HRTG have rallied 81.4% year to date, outperforming the industry’s increase of 30.7%, the Finance sector's rise of 22.5% and the Zacks S&P 500 composite’s gain of 26.3% in the same time frame. 

This super-regional U.S. property and casualty insurance holding company beat estimates in three of the last four quarters and 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

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HRTG shares are trading well above the 50-day moving average, indicating a bullish trend.

Mixed Analyst Sentiment for HRTG

The consensus estimate for 2024 and 2025 earnings has moved 14.9% and 4.4% south, respectively, in the past seven days.

The Zacks Consensus Estimate for 2024 implies a 42.9% year-over-year decrease, while the same for 2025 suggests a 118% increase.

It has a Growth Score of A.

HRTG’s Growth Strategy

HRTG’s growth strategy focuses on rate adequacy, selective profit-oriented underwriting criteria and restricting new business in over-concentrated markets or products to drive profitability. The company 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. 

HRTG focuses on selective underwriting. There has been a decline in policy count, though average premiums per policy increased. However, 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. HRTG stated that it will consider and evaluate growth opportunities in a greater number of states. 

Heritage Insurance is exposed to hurricanes and other severe weather events in the coastal area. Its reinsurance program shields the balance sheet from erosion. The insurer expects a substantial reduction in the 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 strategy to divert capital toward technology and to the segments that have the potential to yield more profits seems prudent.  

HRTG’s Favorable Return on Capital

Return on equity in the trailing 12 months was 29.2%, higher than the industry average of 7.5%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

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 19.7%, higher than the industry average of 5.8%.

Average Target Price for HRTG Suggests a Solid Upside

Based on short-term price targets offered by two analysts, the Zacks average price target is at $16.00 per share. The average suggests a potential 35.3% upside from Tuesday’s closing price.

HRTG Shares Are Affordable

The stock is undervalued compared to its industry. It is currently trading at a price-to-book multiple of 1.42, lower than the industry average of 1.50. It also 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. 

Shares of other insurers like NMI Holdings NMIH, MGIC Investment Corporation MTG and Radian Group RDN are also trading at a multiple lower than the industry average.

Conclusion

A growing commercial residential business, improving E&S business, better pricing, increasing top line, expanding margins and solid earnings bode well for HRTG’s growth.  It also carries a VGM Score of A.

However, given muted analyst sentiment it is better to stay cautious on this Zacks Rank #3 (Hold) stock. Those who own it can retain it in their portfolio. New investors should wait for some time before taking a position in the stock. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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MGIC Investment Corporation (MTG) : Free Stock Analysis Report

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Heritage Insurance Holdings, Inc. (HRTG) : Free Stock Analysis Report

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