On Friday, William Blair raised its rating for HCI Group (NYSE: HCI) from Market Perform to Outperform. The firm highlighted HCI Group's promising earnings growth trajectory following a robust financial performance. In the fourth quarter, HCI Group reported operating earnings per share (EPS) of $3.22 and $7.41 for the full year of 2023. This performance was supported by a 21% increase in premium growth and an efficient combined ratio of 87%.
HCI Group is expected to see accelerated premium growth, driven by various organic growth opportunities and benefits from its association with Florida Citizens. Analysts at William Blair also noted the potential for improved margins due to a more stable reinsurance market and reduced litigation, which is a result of Florida's tort reform. These factors, combined with low acquisition costs for policies from Citizens and effective expense management, are anticipated to boost earnings.
The company's revenue is projected to grow by at least 10% through 2025, and the combined ratio is forecasted to remain between the high 80s and low 90s. Based on these projections, operating earnings could reach around $11 by 2025. Despite HCI Group's stock trading at 9 times the firm's 2025 earnings estimate, analysts believe a multiple of 13 to 14 times is warranted, considering the company's strong compounding ability.
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