Piper Jaffray Sets Overweight Rating, $43 Price Target On HCI Group

Piper Jaffray has set an Overweight rating on HCI Group Inc

with a $43 price target: the shares of HCI have significantly underperformed peers due to investment losses, higher ceded premium, and increasing competition reducing top line growth outlook. The insurance holding company's shares were down 20 percent YTD versus the peer group up 8 percent. Piper Jaffray commented on its company note released Monday, that although the firm remains cautious on HCI's growth outlook, the company has in the past shown an ability to find new and attractive growth opportunities as market conditions evolve. The firm sees return on investment for HCI Group to likely compress, however, Piper Jaffray analysts still expect it to trend in the high teens level and see potential for B/S levers (capital management & cash deployment) that could increase returns in excess of our forecasts. Valuation is seen as "compelling with the stock trading at a discount to peers on both P/E and price to book, despite estimated ROE roughly in line with the overall peer average" Piper Jaffray commented in the note. In an effort to grow opportunistically, HCI Group's management has been able to demonstrate this ability successfully in changing environments. For example, the company has been able to seek out new opportunities early with wind only take-outs and flood insurance, ahead of its competitors. New opportunities ahead Piper Jaffray's estimates an 8 percent decline in top line for 2016E, which they feel the company could find new organic growth or M&A opportunities. The firm believes HCI Group's technology platform, Exzeo, provides advantages in sales, underwriting & claims as the company looks to manage its current book and assess the potential for new areas of growth.