Heritage Insurance Stock Gains 81% YTD: Should You Buy Now or Hold?

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 YTDImage Source: Zacks Investment ResearchHRTG shares are trading well above the 50-day moving average, indicating a bullish trend.Mixed Analyst Sentiment for HRTGThe 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 StrategyHRTG’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 CapitalReturn 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 UpsideBased 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 AffordableThe 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.ConclusionA 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. 7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>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 MGIC Investment Corporation (MTG): Free Stock Analysis Report Radian Group Inc. (RDN): Free Stock Analysis Report NMI Holdings Inc (NMIH): Free Stock Analysis Report Heritage Insurance Holdings, Inc. 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