Compass Point has adjusted its price target for HCI Group (NYSE: HCI), a property and casualty insurance company, to $119.00 from the previous $130.00, while maintaining a Buy rating on the stock.
The revision comes in the wake of Hurricane Helene, which caused significant damage across multiple states including Florida, Georgia, North Carolina, and South Carolina. Additionally, the firm is closely monitoring Hurricane Milton, which is escalating towards a Category 4 or 5 and is projected to hit densely populated areas along Florida's west coast.
The analyst from Compass Point highlighted the expected substantial insured losses from these natural disasters, which are likely to penetrate HCI's reinsurance layers. HCI Group's cumulative retention for each event is $23 million, with $14 million from Tower 1 and $9 million from Tower 2, before its reinsurance treaties take effect.
It was also noted that HCI's captive reinsurance entity, Claddaugh, has collected approximately $23 million in premiums in relation to its reinsurance exposure and is anticipated to incur losses that could be multiple times that amount.
The valuation of HCI's non-TT portion, which includes legacy insurance and real estate, was set at approximately $29.35 per share. This figure is derived from 65% of HCI's four-quarter forward estimate of tangible book value (TBV) and is multiplied by 1.3 times, aligning with comparable companies.
The valuation has decreased from $49.00 per share. Furthermore, HCI Group recently repurchased $100 million in TypTap preferred shares owned by Centerbridge Capital Partners at par. This buyback reflects the full post-money valuation of Centerbridge Partners' original $100 million investment in 2021, which was valued at $850 million, making HCI's 93% ownership of TypTap worth $81 per share.
By combining the non-TT portion with the TypTap portion, the new price target of $119 per share was determined, marking a reduction from the previous $130 target. Additionally, HCI Group offers a dividend of $1.60 per share.
InvestingPro Insights
Despite the recent challenges posed by Hurricane Helene and the looming threat of Hurricane Milton, HCI Group's financial metrics and market performance present a mixed but potentially promising picture for investors. According to InvestingPro data, HCI's stock has shown remarkable resilience, boasting a 75.96% price total return over the past year. This strong performance aligns with the company's robust financial health, as evidenced by its revenue growth of 41.48% over the last twelve months and an impressive 61.98% revenue growth in the most recent quarter.
InvestingPro Tips highlight that HCI Group has maintained dividend payments for 15 consecutive years, underscoring the company's commitment to shareholder returns even in the face of natural disasters. This is particularly relevant given the recent hurricane-related challenges discussed in the article. Additionally, the company's valuation metrics suggest potential undervaluation, with a P/E ratio of 5.93 and a PEG ratio of 0.01, indicating that the stock might be trading at a discount relative to its growth prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on HCI Group, providing deeper insights into the company's financial health and market position. These additional tips could be particularly valuable in assessing HCI's ability to navigate the potential impacts of recent and upcoming hurricanes on its insurance business.
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