HCI Group, a Zacks Rank #1 (Strong Buy), engages in diverse business activities including property and casualty insurance, insurance management, real estate, and information technology in the United States. HCI Group is benefitting from underlying momentum in insurance stocks, paving the way for further gains ahead.
The stock is displaying relative strength and has been making a series of 52-week highs. The price movement is a sign of strength as we head further into the new year. Increasing volume has attracted investor attention as buying pressure accumulates in this top-ranked stock.
This year’s market action has witnessed a notable rotation in industry strength. It’s our job to identify that rotation as early as possible and position our portfolios to benefit from it.
HCI Group is part of the Zacks Insurance – Property and Casualty industry group, which currently ranks in the top 18% out of more than 250 industries. Because this group is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months, just as it has so far this year:
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Note the favorable valuation metrics for this industry group below:
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Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top industries, we can dramatically improve our stock-picking success.
Company Description
Tampa, Florida-based HCI Group conducts its business activities through its subsidiaries. The company’s largest subsidiary in Homeowners Choice Property & Casualty Insurance provides residential products such as homeowners, fire, and wind insurance to homeowners, condominium owners, and tenants for properties. In addition, HCI offers reinsurance programs.
Bolstering its presence in the real estate world, the company owns and operates waterfront properties and retail shopping centers, office buildings, and commercial properties for investment purposes.
HCI Group also designs and develops web-based applications and products including SAMS and Harmony, which are policy administration platforms; ClaimColony, an end-to-end claims management platform; and AtlasViewer, a mapping and data visualization platform.
Earnings Trends and Future Estimates
HCI Group HCI has built up an impressive reporting history, surpassing earnings estimates in each of the past ten quarters. The company most recently delivered fourth-quarter earnings back in February of $0.31 per share, which represented a 111.3% surprise over the Zacks Consensus Estimate.
HCI has delivered a trailing four-quarter average surprise of 45.7%. Consistently beating earnings estimates is a recipe for success.
Analysts covering HCI are in agreement and have raised current-quarter EPS estimates by 16.02% in the past 60 days. The Q1 Zacks Consensus Estimate now stands at $4.49/share, reflecting potential growth of 23% relative to year-ago period. The company is set to report these quarterly results in May.
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Let’s Get Technical
This market leader has seen its stock advance more than 20% already this year, all while the general market pulled back. Only stocks that are in extremely powerful uptrends are able to experience this type of outperformance. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Image Source: StockCharts
Notice how both the 50-day (blue line) and 200-day (red line) moving averages are sloping up. The stock has been making a series of higher highs throughout the past year. With both strong fundamental and technical indicators, HCI stock is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, HCI Group has recently witnessed positive revisions. As long as this trend remains intact (and HCI continues to deliver earnings beats), the stock will likely continue its bullish run.
Bottom Line
Backed by a leading industry group and history of earnings beats, it’s not difficult to see why HCI stock is a compelling investment. Robust fundamentals combined with an appealing technical trend certainly justify adding shares to the mix.
HCI is ranked favorably by our Zacks Style Scores with a top ‘A’ rating in our Value category and an overall ‘B’ VGM score. The stock is undervalued and trades at just 9.3 times forward earnings, well below the industry average. Promising earnings and sales trends point to continued growth ahead.
Recent positive earnings estimate revisions should also serve to create a ‘floor’ in terms of any sudden or unexpected downside moves. If you haven’t already done so, be sure to put HCI on your shortlist.
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This article originally published on Zacks Investment Research (zacks.com).
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