On Wednesday, JMP Securities adjusted its stance on Heritage Insurance Holdings (NYSE:HRTG), moving the stock from a "Market Outperform" rating to a "Market Perform" status. This decision follows Heritage's substantial outperformance relative to JMP Securities' previous price target of $7. The company's shares have recently traded significantly above this target, prompting the firm to reassess the stock as fairly valued.
Heritage Insurance reported a strong fourth quarter for 2023, with an operating earnings per share (EPS) of $1.17, which exceeded JMP Securities' estimate of $0.48 and the consensus of $0.46.
The better-than-expected results were attributed to lower-than-anticipated weather-related and catastrophe losses, as well as a more favorable expense ratio. However, these positives were slightly offset by a higher-than-expected ex-catastrophe accident year loss ratio and adverse prior period development.
The insurer's book value per share reached $7.29, surpassing JMP Securities' estimate of $7.00 and marking a 29% increase from September 31. Despite the stock's current trading at approximately 1.7 times tangible book value and around 7 times the projected earnings for 2024, which is below the peer median in both metrics, Heritage has seen its shares rise by 168% over the past year, compared to a 33% increase for the Russell 3000.
The re-rating of Heritage Insurance's shares is seen as justified by JMP Securities, given the company's performance. However, the firm indicates difficulty in justifying a new price target that would suggest sufficient upside, given the current share price. As a result, the analyst believes that the shares are now fairly valued, leading to the downgrade to "Market Perform."
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