BUSINESS
Tiptree Inc., through its subsidiaries, underwrites and administers specialty insurance products primarily in the United States. The company operates in two segments, Insurance and Mortgage. It offers niche commercial and personal lines insurance, credit insurance and collateral protection products, and warranty and service contract products and solutions, as well as premium finance services. The company also offers mortgage loans for institutional investors; and maritime shipping services, as well as invests in shares. It markets its products through a network of independent insurance agents, consumer finance companies, auto dealers, retailers, brokers, and managing general agencies. The company was formerly known as Tiptree Financial Inc. and changed its name to Tiptree Inc. in December 2016. Tiptree Inc. was incorporated in 2007 and is based in New York, New York.
INVESTMENT RATING
TIPT is expected to continue to be Value Creation neutral reflecting capital returns that are forecasted to be in line with the cost of capital.
Tiptree has a current Value Trend Rating of C (Neutral). With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. Tiptree has a poor Appreciation Score of 30 but a good Power Rating of 80, resulting in the Neutral Value Trend Rating.
Tiptree’s stock is selling above targeted value. The current stock price of $17.25 compares to targeted value 12 months forward of $15.
This low appreciation potential results in an appreciation score of 30 (70% of the universe has greater appreciation potential.)
Tiptree has a Power Rating of 80. (TIPT’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 20% of companies in the universe.) Factors contributing to this good Power Rating include: the Fire, Marine, Casualty Insurance comparison group is in a strong phase currently; and recent price action has been favorable.
INVESTMENT PROFILE
Tiptree’s financial strength is above average. Financial strength rating is 68.
Relative to the S&P 500 Composite, Tiptree Inc has significant Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that TIPT is higher risk. All factors are relative weaknesses. Relative weaknesses for Tiptree include: low forecasted profitability, low historical profitability, low expected growth, and high earnings variability. Tiptree’s valuation is moderate: moderate dividend yield, moderate P/E ratio, and low price/book ratio. TIPT has unusually low market capitalization.
CURRENT SIGNALS
Tiptree’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Tiptree’s current technical position is mixed. The stock price is in a 1.2 month down move. The stock has declined 15.9% from its prior high. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average. The stock has just risen above its 200 day moving average.
ALERTS
Recent meaningful positive changes in investment behavior have benefitted Tiptree Inc (NASDAQ: TIPT): the stock’s recent price rise disrupted its longer term downtrend. Recent slight negative changes in fundamentals have impacted Tiptree Inc (NASDAQ: TIPT): significant quarterly earnings deceleration occurred. The stock is currently rated C. Tiptree Inc (NASDAQ: TIPT) stock rose modestly by 1.0% on 4/3/24. The stock closed at $17.25. However, trading volume in this advance was unusually low at 54% of normal. The stock has been strong relative to the market over the last nine months and has risen 2.7% during the last week.CASH FLOW
In 2022, Tiptree generated an increase in cash of +$10.4 million (+5%). Sources of cash were very slightly larger than uses. Cash generated from 2022 EBITDA totaled +$131.0 million. Non-operating uses consumed -$10.0 million (-8% of EBITDA). Cash taxes consumed -$5.4 million (-4% of EBITDA). Re-investment in the business amounted to -$33.4 million (-25% of EBITDA). On a net basis, debt investors withdrew -$60.5 million (-46% of EBITDA) while equity investors pulled out -$11.3 million (-9% of EBITDA).
Tiptree’s Non-operating Income, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Tiptree Peer Group. In most years, Tiptree was in the third quartile and second quartile. Currently, Tiptree is slightly below median at -8% of EBITDA (-$10.0 million).
Tiptree’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Tiptree Peer Group. In most years, Tiptree was in the top quartile and third quartile. Currently, Tiptree is lower quartile at -4% of EBITDA (-$5.4 million).
Tiptree’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Tiptree Peer Group. In most years, Tiptree was in the top quartile and lower quartile. Currently, Tiptree is upper quartile at -25% of EBITDA (-$33.4 million).
Tiptree’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Tiptree Peer Group. In most years, Tiptree was in the top quartile and lower quartile. Currently, Tiptree is substantially below median at -46% of EBITDA (-$60.5 million).
Tiptree’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Tiptree Peer Group. In most years, Tiptree was in the top quartile and lower quartile. Currently, Tiptree is slightly above median at -9% of EBITDA (-$11.3 million).
Tiptree’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Tiptree Peer Group. In most years, Tiptree was in the top quartile and lower quartile. Currently, Tiptree is at the upper quartile at +8% of EBITDA (+$10.4 million).
Tiptree’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Tiptree Peer Group. (Since 2017 Cash, %Revenue has recently stabilized.) In most years, Tiptree was in the second quartile and top quartile. Currently, Tiptree is substantially above median at +20%.
PROFITABILITY
Tiptree’s return on equity has eroded very significantly since 2017. The current level is 2.0% versus the high of 8.6% and the low of -3.4%.
Tiptree’s very strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors is a significant analytical factor.
The productivity of Tiptree’s assets rose over the full period 2013-2023: asset turnover has enjoyed a very strong overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Tiptree’s return on equity is slightly below median (2.0%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at median (1.6%) reflecting asset turnover that is at median (0.33X) and below median pretax margin (5.0%).
Tax “keep” rate (income tax management) is lower quartile (10.2%) resulting in after tax return on assets that is below median.
Financial leverage (leverage) is upper quartile (12.19X).
GROWTH RATES
There are no significant differences between Tiptree’s longer term growth and growth in recent years. Tiptree’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.Annual revenue growth has been 27.0% per year.
Total asset growth has been -0.9% per year.
Annual E.P.S. growth has been 18.3% per year.
Equity growth has been 2.4% per year.
No consensus growth rate forecast is available for Tiptree.
Relative to the Tiptree Peer Group, Tiptree’s historical growth measures are erratic. Revenue growth (27.0%) has been upper quartile. E.P.S. growth (18.3%) has been at the upper quartile. Equity growth (2.4%) has been above median. Total asset growth (-0.9%) has been slightly above median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Tiptree’s stock price performance has been variable and below market. Between June, 2013 and April, 2024, Tiptree’s stock price rose +146%; relative to the market, this was a -24% loss. Significant price move during the period: 1) October, 2020 – October, 2021: +221%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 10.2% is slightly below median relative to the S&P 500 Composite. In addition to being slightly below median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 10.2% is above median relative to Tiptree Inc Peer Group.
Current 5-year total return performance of 25.7% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 25.7% relative to S&P 500 Composite, Tiptree’s total return performance is at the upper quartile relative to Tiptree Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, TIPT’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/earnings before interest and taxes, then by the price/equity ratio, then by the ratio of enterprise value/revenue. The lowest factor, ratio of enterprise value/assets, is lower quartile.
Relative to Tiptree Peer Group, TIPT’s overall valuation is low. The highest factor, the price/earnings ratio, is at the upper quartile. Price/equity ratio is above median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Ratio of enterprise value/revenue is lower quartile. The lowest factor, the ratio of enterprise value/assets, is lower quartile.
Tiptree has a major value gap compared to the median. For TIPT to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.66X to 1.97X. If TIPT’s ratio of enterprise value/revenue were to rise to 1.97X, its stock price would be higher by $56 to $74. For TIPT to achieve upper quartile valuation relative to the Tiptree Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.66X to 3.83X. If TIPT’s ratio of enterprise value/revenue were to rise to 3.83X, its stock price would increase by $135 from the current level of $17.
VALUE TARGETS
TIPT is expected to continue to be Value Creation neutral reflecting capital returns that are forecasted to be in line with the cost of capital.
Tiptree’s current Price Target of $15 represents a -13% change from the current price of $17.25.
This low appreciation potential results in an appreciation score of 30 (70% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 30, the high Power Rating of 80 results in an Value Trend Rating of C.
Tiptree’s current Price Target is $15 (+53% from the 2022 Target of $10 but -13% from the 04/03/24 price of $17.25). This dramatic rise in the Target is the result of a +13% increase in the equity base and a +36% increase in the price/equity multiple. The forecasted decline in growth has no impact on the price/equity multiple and the forecasted increase in cost of equity has no impact either. However, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 9.1% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2019 low of 4%.
PTR’s growth forecast is 9.0% — above our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is well above the 2020 low of 0%.
PTR’s cost of equity forecast is 8.8% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2014 and 2022. The current forecast is below the 2014 peak of 13.3%.
At Tiptree’s current price of $17.25, investors are placing a positive value of $2 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 13.0% per year, and a return on equity of 7.2% versus a cost of equity of 8.2%.
PTR’s 2024 Price Target of $15 is based on these forecasts and reflects an estimated value of existing assets of $14 and a value of future investments of $1.
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