HRTG Outpaces Industry in 3 Months: Time to Buy the Stock?

Shares of Heritage Insurance Holdings, Inc. HRTG have rallied 96.1% over the past three months, outperforming its industry’s growth of 0.3%, the sector’s increase of 6.3% and the Zacks S&P 500 composite’s rise of 7.1%. 

HCI Group Inc. HCI, a crypto-oriented company, has gained 11.8% over the past three months, while Universal Insurance Holdings UVE has gained 28.4% in the same time frame.

This super-regional U.S. property and casualty insurance holding company is poised to gain from prudent underwriting execution and rate adequacy initiatives pursued over the last three years.

What’s Driving HRTG?

Heritage Insurance is emphasizing profitability by ensuring rate adequacy, implementing profit-focused underwriting criteria, and limiting new business in saturated or low-performing markets. 

In response to declining returns and a tightening reinsurance market, the company stopped the issuance of new personal lines policies in Florida and the Northeast as of December 2022. However, it noticed legislative changes in Florida and stabilization of reinsurance pricing, which opened up new opportunities for HRTG. It has again started writing new personal lines business but with a controlled growth strategy. 

Its 2025 strategy involves selectively re-entering profitable markets and allocating capital in a disciplined manner to preserve margins and profitability. HRTG remains focused on maintaining rate adequacy, implementing data-driven analytics for effective exposure management, and leveraging its infrastructure and operational capabilities to support long-term growth. It thus expects the in-force policy count to stabilize and return to growth in 2025 and 2026.

The excess and surplus (E&S) segment is a key growth driver for Heritage Insurance, as the company actively pursues expansion into additional states. Its reinsurance strategy provides strong protection against hurricane and severe weather risks in coastal areas. HRTG expects a notable reduction in its ceded premium ratio, supported by more cost-efficient enhancements to its reinsurance structure and higher gross premiums earned. Recently, the insurer successfully completed placement of its 2025–2026 indemnity-based catastrophe excess-of-loss reinsurance program for its insurance subsidiaries.

Heritage is also channeling capital toward technology investments, particularly in the InsurTech space. Its Guidewire Cloud, partnership with Slide, predictive modeling, cloud solutions and pricing analytics have been augmenting underwriting expertise, giving a competitive edge and improving claims processing.

In addition, the insurer has a $10 million share buyback program as part of its efforts to return value to shareholders.

Estimate Revision Trend

The Zacks Consensus Estimate for HRTG’s 2025 and 2026 earnings has moved 33.7% and 17.6% north, respectively, in the past 60 days.

The consensus estimates for 2025 and 2026 earnings of HCI Group also witnessed northward movement in the past 60 days. But Universal Insurance Holdings witnessed no estimate movement in the past 60 days.

Optimistic Growth Estimates for HRTG

The Zacks Consensus Estimate for 2025 and 2026 EPS implies a respective 61.7% and 13.2% year-over-year increase. HRTG has a Growth Score of B.

HRTG’s Favorable Return on Capital

Return on equity in the trailing 12 months was 28.7%, higher than the industry average of 8.3%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders' equity.
 

Its return on invested capital (ROIC) has been increasing for quite some time. This reflects HRTG’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 19.4%, higher than the industry average of 6%.

HRTG Shares Are Expensive

The stock is overvalued compared to its industry. It is currently trading at a price-to-book multiple of 2.22, higher than the industry average of 1.57. But it has a Value Score of B.

Meanwhile, HRTG is cheaper than HCI Group but expensive when compared with Universal Insurance Holdings.

How to Play HRTG Stock

A growing commercial residential business, expanded personal lines capacity, improving E&S business, better pricing, increasing top line, expanding margins and solid earnings bode well for HRTG’s growth. Its VGM Score of A and strategic focus on accelerating growth raise optimism. The average target price of $29 reflects a 23.3% upside potential to yesterday’s closing price. 

Despite its premium valuation, it is worth adding this Zacks Rank #1 (Strong Buy) stock to your portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research