HRTG

We rate Heritage Insurance Holdings, Inc. (HRTG) as a Reduce with a composite score of 45.6/100 at a current price of $27.67. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in momentum (66th percentile) and value (50th percentile), which together account for the majority of the composite score. Offsetting weakness in quality (29th percentile) and investment (37th percentile) tempers our overall conviction. We assign a Narrow Moat rating (46/100), Medium uncertainty, and Exemplary capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Heritage Insurance Holdings, Inc. holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 45.6/100 places it at rank #2698 in our full 7,333-stock universe. At $781M in market capitalization, Heritage Insurance Holdings, Inc. is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

The outlook is moderately positive, with revenue expanding at 4% and favorable momentum (66th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 0% (-76.5pp vs sector) narrow to operating margins of 22% (+5.4pp vs sector) and net margins of 16.3%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $27.67, Heritage Insurance Holdings, Inc. is trading near fair value based on current fundamentals. Our value factor score of 50/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 5.4x (a 54% discount to the sector median of 11.9x), EV/EBITDA of 4.1x (discounted to peers), P/B of 1.7x, P/S of 0.9x. The below-sector P/E suggests possible undervaluation or the market pricing in near-term headwinds.

We assign a Medium uncertainty rating to Heritage Insurance Holdings, Inc.. The stock presents a balanced risk profile: below-average price stability (40th percentile) and weak quality scores (29th percentile). While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: below-average price stability (40th percentile); weak quality scores (29th percentile); low beta of 0.26 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 40th percentile and quality factor at the 29th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: conservative leverage (18% D/E) limits balance sheet risk. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Heritage Insurance Holdings, Inc.'s capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 31.4%, disciplined leverage (18% D/E), best-in-class net margins of 16.3%. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — Heritage Insurance Holdings, Inc. meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. We note that the combination of 5.8% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, Heritage Insurance Holdings, Inc. receives a Reduce rating with a composite score of 45.6/100 (rank #2698 of 7,333). Our quantitative framework assigns a Narrow Moat (46/100, trend: stable), Medium uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 44/100.

Our analysis does not support a constructive view on Heritage Insurance Holdings, Inc. at this time. The combination of the current quantitative profile, medium uncertainty, and exemplary capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.