Oppenheimer’s Favorite Stocks For Next 12 Months: Top 32 Stock Picks

6. HCI Group, Inc. (NYSE:HCI)

Share Price Upside: 46%

Number of Hedge Fund Investors In Q2 2024: 21

Average Analyst Share Price Target: $138.75

HCI Group, Inc. (NYSE:HCI) is a Florida based insurance company. It primarily caters to the needs of homeowners and provides them with insurance against fires and floods. HCI Group, Inc. (NYSE:HCI) also operates properties and provides software products for claims management and other services. The fact that HCI Group, Inc. (NYSE:HCI) is based in Florida creates a risk for the firm due to the evolving nature of climate related impacts on the insurance industry in the region. As they face rising damages from climate catastrophes, insurance providers are either exiting the market or raising premiums, both of which make business difficult. At the same time, it also means that if HCI Group, Inc. (NYSE:HCI) is able to manage its portfolio efficiently, then it could raise premiums following the exodus of other insurance firms. On this front, it is already facing tailwinds from the depopulation of Citizens Property Insurance, and HCI Group, Inc. (NYSE:HCI)’s software business also provides it with a high margin division to boost profits. Oppenheimer believes that the stock is undervalued and HCI Group, Inc. (NYSE:HCI)’s shares “will move toward fair value, which we think is significantly above the current price.”

HCI Group, Inc. (NYSE:HCI)’s management shared key details for the Citizen Insurance depopulation during the Q2 2024 earnings call:

“First, Condo Owners Reciprocal Exchange, known as CORE, assumed additional policies from Citizens, and its total run rate premium is approximately $70 million. Second, we completed our annual reinsurance program in the quarter, which included a structure similar to last year, and retention at both of our insurance carriers was largely unchanged. We were pleased with the outcome and we appreciate the continued support of our reinsurance partners.

We believe reinsurers recognize the value of our technology and our claims organization. With reinsurance now secure, we expect our total reinsurance spend across all reinsurance towers to be approximately $92 million per quarter. This includes the consolidation of CORE’s reinsurance spend and minor risk transfer enhancements. I’d like to reaffirm a few statements I made last quarter related to the assumption of policies from Citizens. First, I mentioned that we were retaining more policies than we expected. As more policies come up for renewal and transition to our paper, this is still the case. The retention of policies continues to exceed our expectations. Second, I mentioned that the loss ratio was coming in better than expected. As this book becomes more seasoned, this is still the case.

The loss ratio on policies we assumed from Citizens is continuing better than expected. Given the proven success of our technology to select attractive policies from Citizens, we have applied to assume additional policies from Citizens. Homeowners Choice has been approved to assume up to 25,000 policies in October. TypTap has also been approved to assume 25,000 policies in October. And both companies have applied to participate in a November assumption as well. Additionally, CORE has been approved to assume policies from Citizens in October. We will update everyone on our plans closer to the assumption date. Overall, we posted another quarter of solid profitability, and we continue to make solid progress on our top line and bottom line.”