Why Did Hippo Fly 31% on Friday?

Shares of Hippo Holding (NYSE: HIPO) soared a whopping 30.7% on Friday despite a wider-than-expected loss for the first quarter of 2022. At the time of writing, however, HIPO stock was down 3.1%.

The California-based property insurance company reported an adjusted loss of $0.10 per share in the quarter, higher than the consensus loss estimate of $0.09 per share.

Revenues of $24.5 million during the quarter rose up 44% from the same quarter last year. The growth can be attributed to the rise in commissions, service and fee income along with net investment income.

Further, the company’s total generated premium (TGP) grew 25% to $154 million on the back of its efforts to expand into different states. Hippo Homeowners premium retention rate stood at 87%.

Its gross loss ratio stood at 76% in the first quarter. The company reported a negative adjusted EBITDA of $48.5 million, compared with a loss of $35.6 million in the year-ago quarter.

The Co-Founder and CEO of Hippo, Assaf Wand, said, “We believe by focusing on geographic expansion, attracting more homeowners who embrace proactive home protection through our omni-channel strategy, and continuously refining our risk models, we will deliver better outcomes for our customers and fuel Hippo’s success.”

Outlook

For 2022, the company has maintained its guidance. TGP is expected between $800 million and $820 million. Revenues are anticipated in the range of $140 million to $142 million. Further, Hippo anticipates a gross loss ratio below 100%.

Stock Rating

Following the release, JMP Securities analyst Matthew Carletti maintained a Buy rating on Hippo with a price target of $4 (146.9% upside potential from current levels).

Carletti said, “Hippo is taking a fresh approach to homeowners’ insurance that re-thinks coverage and policy forms for today’s home ownership experience, by using technology in a proactive approach to underwriting and making distribution more seamless, and by leveraging home ownership partnerships and services to help homeowners mitigate/prevent losses before they happen.”

Consensus among analysts is a Strong Buy based on three Buys and one Hold. Hippo’s average price target stands at $4.19 and implies upside potential of 158.6% to current levels.

Conclusion

Despite the earnings miss, the company has performed decently in the first quarter. High premium retention rate and efforts to enter new states reflect Hippo’s potential for long-term growth. Also, bullish analyst sentiments keep us optimistic.

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