Property and casualty insurance provider Hippo Holdings (HIPO) has enjoyed a positive growth trajectory and shown substantial improvement in its financial performance, with significant strides toward profitability, increased top-line premium and revenue, and year-on-year improvement in the non-weather loss ratio. With a diversified portfolio offering homeowners insurance, personal and commercial insurance, and a range of other insurance products, Hippo has actively expanded its technology-driven services through its New Homes Program, aiming to simplify and streamline the home insurance process for homebuilders. The company’s growth and solid financial performance have resulted in upgrades from Wall Street analysts, making the stock a potentially appealing option in the insurance industry.
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Promising New Homes Insurance Program
Hippo Holding is a U.S.-based insurance provider with several subsidiaries specializing in property and casualty insurance for individuals and businesses. The company operates mainly through three segments: Services, Insurance-as-a-Service, and the Hippo Home Insurance Program. Its product portfolio includes homeowners’ insurance covering risks like fire, wind, and theft, as well as other personal and commercial insurance policies.
The company also runs a “New Homes” program aimed at homebuilders. This program offers a scalable insurance solution to streamline the property closing process. Hippo also plans to expand its New Homes Program in California, Florida, and Texas. By the end of the year, this program will provide insurance access to almost 50,000 additional new homes in these states. Furthermore, due to the comparatively lower risks associated with new construction, Hippo can offer more affordable premiums for these policies.
In other news, Hippo recently sold a majority stake in First Connect Insurance Services to Centana Growth Partners for approximately $48 million. The deal can potentially increase proceeds by $12 million if First Connect meets specified performance targets.
Significant Growth Driving Profitability
In the recently reported third quarter, the company experienced significant top-line growth, with a 65% year-over-year increase in revenue, reaching $95 million. The consolidated total gross profit rose 21% year-over-year, primarily driven by Services and Insurance-as-a-Service (IaaS), which posted 46% and 12% growth, respectively.
The company also experienced an improvement in the loss ratio for the Q3 accident period, with a 67pp year-over-year decrease in the net loss ratio. Operating leverage improved, as fixed expenses decreased by $17 million while revenue rose by $37 million.
The quarter saw a marked progression towards profitability, with Q3 net loss attributable to the company decreasing by 84% year-over-year to $8.5 million, and Q3 adjusted EBITDA loss also dropped by 81% to $7.5 million.
As of the quarter’s end, the company reported $545 million in cash and investments.
Management has issued guidance for Q4, anticipating revenue between $95 million to $99 million and adjusted EBITDA between positive $5 million to $6 million.
Analysts Are Constructive on the Stock
The stock has been on an upward trajectory, climbing over 211% in the past year. It trades in the upper quartile of its 52-week price range of $7.75 – $34.24 and shows positive price momentum as it trades above most major moving averages. The stock looks to be trading at a relative discount, with the P/S ratio of 1.96x sitting below the Financials sector average of 3.09x.
Analysts following the company have mostly been constructive about the stock. For instance, Jefferies analyst Yaron Kinar, a five-star analyst according to Tipranks’ ratings, has recently increased the price target on the shares from $34 to $36 while maintaining a Buy rating, noting the firm’s solid and improving fundamentals.
Hippo Holdings is rated a Moderate Buy overall, based on the recent recommendations of three analysts. Their average price target for HIPO stock is $30.67, which represents a potential upside of 14.44% from current levels.
HIPO in Summary
Hippo has demonstrated a promising growth trajectory, significantly improved financial performance, and is steadily advancing toward profitability. Hippo’s future looks promising, with plans for program expansion and potential new partnerships. Wall Street analysts recognize these strides, leading to upgraded ratings and optimistic sentiments about the stock’s potential. Investors considering investing in the insurance sector should keep this stock on their radar.
