Analyzing Federated National (FNHC) and HCI Group (HCI)

Federated National (NASDAQ: FNHC) and HCI Group (NYSE:HCI) are both small-cap finance companies, but which is the better business? We will compare the two companies based on the strength of their valuation, earnings, dividends, analyst recommendations, risk, profitability and institutional ownership.

Dividends

Federated National pays an annual dividend of $0.32 per share and has a dividend yield of 2.2%. HCI Group pays an annual dividend of $1.40 per share and has a dividend yield of 4.1%. Federated National pays out -45.1% of its earnings in the form of a dividend. HCI Group pays out -74.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. HCI Group has raised its dividend for 4 consecutive years. HCI Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

Federated National has a beta of 1.29, meaning that its share price is 29% more volatile than the S&P 500. Comparatively, HCI Group has a beta of 2.25, meaning that its share price is 125% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings and target prices for Federated National and HCI Group, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Federated National 0 0 1 0 3.00
HCI Group 0 1 2 0 2.67

Federated National presently has a consensus price target of $22.00, suggesting a potential upside of 49.66%. HCI Group has a consensus price target of $43.33, suggesting a potential upside of 27.04%. Given Federated National’s stronger consensus rating and higher possible upside, analysts plainly believe Federated National is more favorable than HCI Group.

Institutional and Insider Ownership

62.5% of Federated National shares are owned by institutional investors. Comparatively, 76.9% of HCI Group shares are owned by institutional investors. 10.8% of Federated National shares are owned by insiders. Comparatively, 20.4% of HCI Group shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares Federated National and HCI Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Federated National -2.54% -4.03% -1.06%
HCI Group -5.63% -6.34% -1.75%

Earnings & Valuation

This table compares Federated National and HCI Group’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Federated National $316.38 million 0.61 -$190,000.00 ($0.71) -20.70
HCI Group $264.45 million 1.26 $29.02 million ($1.89) -18.05

HCI Group has lower revenue, but higher earnings than Federated National. Federated National is trading at a lower price-to-earnings ratio than HCI Group, indicating that it is currently the more affordable of the two stocks.

Summary

HCI Group beats Federated National on 9 of the 16 factors compared between the two stocks.

About Federated National

Federated National Holding Company (FNHC) is an insurance holding company that controls all steps in the insurance underwriting, distribution and claims processes through its subsidiaries and its contractual relationships with its independent agents and general agents. The Company is authorized to underwrite homeowners’ multi-peril (homeowners), commercial general liability, federal flood, personal auto and various other lines of insurance in Florida and various other states. The Company markets, distributes and services its own and third-party insurers’ products and its other services through a network of independent agents. The Company’s insurance lines of business include Homeowners’ Property and Casualty Insurance, Commercial General Liability, Personal Automobile and Flood. FNIC and MNIC underwrite homeowners’ insurance in Florida, and FNIC underwrites insurance in Alabama, Louisiana and South Carolina. Alabama and Louisiana.

About HCI Group

HCI Group, Inc. (HCI) is an insurance holding company. The Company operates through four operating divisions: property and casualty insurance, reinsurance, investment real estate and information technology. Its operations include Insurance Operations and Other Operations. Its Insurance Operations include property and casualty insurance, and reinsurance. The Company, through its subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPCI), provides property and casualty insurance to homeowners, condominium owners and tenants on properties located in Florida. HCPCI also offers flood-endorsed and wind-only policies to new and pre-existing Florida customers. Its Other Operations include information technology (IT) and real estate. The Company’s real estate operations consist of multiple properties it owns and operates.

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