Reviewing Federated National (NASDAQ:FNHC) and Heritage Insurance (NASDAQ:HRTG)

Federated National (NASDAQ:FNHC) and Heritage Insurance (NYSE:HRTG) are both small-cap finance companies, but which is the superior investment? We will contrast the two companies based on the strength of their valuation, dividends, profitability, risk, earnings, analyst recommendations and institutional ownership.

Valuation and Earnings

This table compares Federated National and Heritage Insurance’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Federated National $396.09 million 0.42 $14.93 million $1.40 9.35
Heritage Insurance $480.17 million 1.00 $27.16 million $1.38 11.62

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

Profitability

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

Net Margins Return on Equity Return on Assets
Federated National 0.89% 4.07% 0.93%
Heritage Insurance 3.97% 6.70% 1.51%

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Federated National and Heritage Insurance, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Federated National 0 1 1 0 2.50
Heritage Insurance 0 0 3 0 3.00

Federated National currently has a consensus target price of $27.00, indicating a potential upside of 106.26%. Heritage Insurance has a consensus target price of $18.17, indicating a potential upside of 13.26%. Given Federated National’s higher probable upside, analysts clearly believe Federated National is more favorable than Heritage Insurance.

Insider & Institutional Ownership

64.3% of Federated National shares are owned by institutional investors. Comparatively, 64.3% of Heritage Insurance shares are owned by institutional investors. 10.5% of Federated National shares are owned by insiders. Comparatively, 12.0% of Heritage Insurance shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Risk & Volatility

Federated National has a beta of 0.83, suggesting that its stock price is 17% less volatile than the S&P 500. Comparatively, Heritage Insurance has a beta of 0.78, suggesting that its stock price is 22% less volatile than the S&P 500.

Dividends

Federated National pays an annual dividend of $0.32 per share and has a dividend yield of 2.4%. Heritage Insurance pays an annual dividend of $0.24 per share and has a dividend yield of 1.5%. Federated National pays out 22.9% of its earnings in the form of a dividend. Heritage Insurance pays out 17.4% 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. Heritage Insurance has increased its dividend for 2 consecutive years.

Summary

Heritage Insurance beats Federated National on 12 of the 17 factors compared between the two stocks.

Federated National Company Profile

FedNat Holding Company, through its subsidiaries, engages in the insurance underwriting, distribution, and claims processing business in the United States. The company is involved in the homeowners, and fire property and casualty insurance; and personal automobile insurance businesses, as well as commercial general liability and federal flood businesses. It markets and distributes its own and third-party insurers' products, and other services through a network of independent and general agents. The company was formerly known as Federated National Holding Company and changed its name to FedNat Holding Company in May 2018. FedNat Holding Company was founded in 1991 and is based in Sunrise, Florida.

Heritage Insurance Company Profile

Heritage Insurance Holdings, Inc., through its subsidiaries, provides personal and commercial residential insurance products. The company offers personal residential property insurance for single-family homeowners and condominium owners; rental property insurance; and commercial residential insurance in Alabama, Connecticut, Florida, Georgia, Hawaii, Massachusetts, New York, New Jersey, North Carolina, Rhode Island, and South Carolina, as well as residential wind-only property insurance. As of December 31, 2018, it had approximately 512,793 personal residential policies and 3,000 commercial residential policies. The company markets and writes its voluntary personal line policies through a network of retail independent agents, wholesale agents, and a partnership with a direct agency, as well as indirectly to approximately 1,500 retail locations through 8 wholesale agency relationships. It also provides restoration, and emergency and recovery services; and property management, retail agency, and reinsurance services. The company was founded in 2012 and is headquartered in Clearwater, Florida.

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