Has the stock market miss-priced HCII?
Homeowners Choise: HCII 13.84 [+0.02]
May 26, 2010
I believe so!
Homeowners Choice now has a peaking earning potential of $2.08, cash of $8.85 per share and no debt, and Real estate valued at $1.12 per share.
We now believe Homeowners Choice has targeted diversified insurance policies throughout the State of Florida, knowing hurricanes can be devastating leaving a high level of damage but also damage is often in a compressed area. Because of Homeowners Choice’s state diversification model, we now believe that their hurricane risk in Florida is limited to about the $3 million potential Risk. So if you assume only one hurricane hits Florida, we still project earnings to be around the $1.60 range.
It’s our contention that profitable companies should trade above the level of cash in the bank. At one hurricane or $1.60 times a PE of $9.42 (the property and casualty industry average), this comes to $15.07; At $2.08 times a PE of $9.42, this would be $18.84.
With cash at $8.85 per share plus $1.12 in real estate, which appears to be overlooked, this gives say a buyout firm with about $9.97 of mostly liquid assets an ability to buy a $6.50 company. Plus, then, they would receive the remaining company that has over $2 in earning power.
We believe this down turn provides a good opportunity to invest in a very profitable company trading well below cash and at about 3.125 peak earnings!
Ratios and Statistics for HOMEOWNERS CHOICE (HCII : NSDQ)
Industry: INSURANCE-PROPERTY & CAUSALITY
| Valuation Ratios | Company | Industry | S&P 500 |
| P/E Ratio | 8.36 | *9.42 | 28.15 |
| Beta | 0.43 | n/a | 1.00 |
| Price to Sales | 0.63 | 0.99 | n/a |
| Price to Book | 0.89 | 0.86 | 3.41 |
| Price to Cash Flow | 3.66 | 7.31 | 13.18 |
| % Owned Institutions | 1.61 | 50.64 | n/a |
Please review our other HCII articles here.
Disclosure
Durig Capital, Randy Durig, their clients and related accounts have purchased Homeowners Choice with the majority around $8.
Sincerely,
Randy Durig
Financial Investment Advisor
DIR 971-732-5119
Hi Randy,
Can you explain me how did u come out with Real Estate Value $1.12?
Hi Francis.
I used the reported $7,000,000 that HCII paid for the office building, using the cost to purchase.
Francis, I hope this helps, if not let me know.
Randy
Thanks,Randy.
Hi Randy,
Great post!
I also hold the stock and think it’s cheap at current price.
In any case, can you explain me how did u come out with the $3 million potential Risk in case of a hurricane hits Florida (“we now believe that their hurricane risk in Florida is limited to about the $3 million potential Risk”)?
Thanks
Ron
Hi Ron
Thanks for the compliment! You and I agree!
The company is saying, and sorry I can’t confirm this by third party data, that due to the following:
1. Pick-up of policies systematically spread throughout the entire state.
2. Keeping low concentrations of policies in any one area.
3. Staying away from Ocean front.
4. Using outside re-insurance
Then knowing that hurricane damage occurs in a very concentrated area, coming from the ocean, they believe that their risk to a single hurricane is in the 3 million dollar range.
With that said, with the new rates coming in it should raise revenues in the $15 million dollar range, plus add that HCII is possibly cutting re-insurance cost by $3-6 million.
Adding the major positives above of $18-21 million with a (possible) negative of $3 million, HCII should increase profits significantly, even with a hurricane.
I hope this helps, if not let me know.
Randy
Hi Randy,
Thanks for the answer. I saw in Yahoo finance (for example) that insiders hold 22% of the shares outstanding. Is it an accurate (and updated) value?
Thanks
Ron