Rising earnings estimates on the back of strong second-quarter
results, including a 23.3% earnings surprise, helped
Homeowners Choice, Inc.
) achieve a Zacks #1 Rank (Strong Buy) on September 11. Moreover,
this property and casualty insurer has delivered positive earnings
surprises in the last five consecutive quarters with an average
beat of 55.6%.
With a solid year-to-date return of 190.4% and a history of beating
quarterly earnings estimates, this stock offers an attractive
The Rank Driver
Better-than-expected second-quarter earnings, growth in revenues
and strong credit quality are the primary rank drivers for this
Homeowners Choice reported its second-quarter results on August 1
with earnings per share of 74 cents, beating the Zacks Consensus
Estimate of 60 cents by 23.3% and year-ago earnings of 30 cents by
146.7%. Strong results for the quarter were primarily aided by
substantially higher net premiums earned. However, slightly lower
net investment income and higher expenses were the downsides.
Net premiums earned increased 112.8% to $36.3 million from $17.0
million in the year-ago quarter.
Net investment income in the second quarter of 2012 was $0.3
million compared with $0.5 million in the year-ago quarter. Total
expenses increased 71.4% from the year-ago period to $26.8 million.
Homeowners Choice's loss ratio (defined as loss and loss adjustment
expenses related to net premiums earned) was 44.7% in the reported
quarter compared with 61.7% in the prior-year quarter. The
year-over-year decrease in the loss ratio was primarily a result of
significant hike in gross premiums earned in the quarter.
The expense ratio (defined as policy acquisition and other
underwriting expenses related to net premiums earned plus
compensation, employee benefits and other operating expenses) was
29.4% in the second quarter of 2012 compared with 30.1% in the
The combined loss and expense ratio to gross premiums earned was
49.9% in the quarter compared with 50.2% in the same period in
Earnings Estimate Revisions
The Zacks Consensus Estimate for 2012 increased 8.8% to $2.46 per
share based on two out of three upward estimate revisions over the
last 30 days. The current estimate implies year-over-year growth of
For 2013, two out of three estimates was revised higher over the
same time frame, lifting the Zacks Consensus Estimate by 23.1% to
$2.45 per share.
Homeowners Choice currently trades at a forward P/E of 9.1x, a
52.6% discount to the peer group average of 19.2x. Also, on a
price-to-book basis, the shares are trading at 2.0x, a significant
premium to the peer group average of 0.9x.
Homeowners Choice has a trailing 12-month ROE of 29.2% compared
with the peer group average of 7.2%.
About the Company
Headquartered in Tampa, Florida, Homeowners Choice is an insurance
holding company. Through its subsidiaries, it provides property and
casualty homeowners' insurance, condominium owners' insurance and
tenants' insurance. It serves roughly 110,000 policyholders
throughout Florida representing approximately $220 million in
annualized premiums. Founded in 2006, the company has a market
capitalization of roughly $211.6 million.
Other Zacks #1 Rank financial stocks include
First American Financial Corporation
Fidelity National Financial, Inc.
FIRST AMER FINL (FAF): Free Stock Analysis
FIDELITY NAT FI (FNF): Free Stock Analysis
HOMEOWNERS CHCE (HCII): Free Stock Analysis
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