HGTY: State Farm Partnership Expansion Will Boost Market Leadership

Key Takeaways

• Expansion into global markets and digital innovation are expected to boost revenue growth, operational efficiency, and customer experience across high-margin ancillary businesses.
  
• Strategic partnerships and demographic trends should expand the customer base and drive sustainable, recurring income for long-term profitability.
  
• Demographic shifts, insurance risk concentration, and uncertainties in new market strategies pose significant challenges to Hagerty's growth, profitability, and revenue predictability.

Catalysts

Provides insurance services for collector cars and enthusiast vehicles in the United States.

• The expansion of Hagerty's European auction and marketplace business, alongside successful launches at high-profile Concours events and entry into new geographies, positions the company to tap into a growing global population of luxury and collectible vehicle enthusiasts. This should support strong top-line revenue growth and higher-margin ancillary business streams.
  
• The ramping State Farm partnership is expected to significantly accelerate new business growth, providing access to over 500,000 current program vehicles and thousands of motivated agents, materially expanding Hagerty's customer acquisition funnel and recurring commission revenues at attractive margins over the next several years.
  
• Ongoing advances in digital technology integration-including the launch of the Enthusiast+ program on a cloud-based platform (Duck Creek)-are expected to drive operational efficiencies and improved customer experience. As these technology investments scale, Hagerty anticipates margin expansion and improved earnings leverage in 2026 and beyond.
  
• The shift to a 100% risk-retention fronting arrangement with Markel from 2026 will increase Hagerty's share of both underwriting profit and investment income, enhancing net margins and providing greater control over its insurance operations.
  
• Demographic shifts, with growing wealth among Gen X and Millennials and increased interest in luxury and alternative assets for portfolio diversification, are likely to expand the addressable market for collectible car insurance and drive sustainable premium growth for Hagerty, supporting predictable long-term revenue and earnings.

Hagerty Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hagerty's revenue will grow by 11.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 12.8% in 3 years time.
• Analysts expect earnings to reach $228.5 million (and earnings per share of $3.1) by about September 2028, up from $18.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, down from 65.2x today. This future PE is greater than the current PE for the US Insurance industry at 14.3x.
• Analysts expect the number of shares outstanding to grow by 1.01% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Hagerty Future Earnings Per Share Growth

Risks

• The business remains highly exposed to demographic risks; as younger generations continue to shift away from traditional car ownership and exhibit less interest in classic cars, Hagerty faces long-term demand headwinds, threatening future revenue and membership growth.
  
• Expansion and profitability are increasingly dependent on successful execution of international marketplace growth and new insurance products (e.g., Enthusiast+), with significant upfront investments and no guarantee of sustained demand or margin improvement, introducing risk to net margins and earnings predictability if these bets do not scale as expected.
  
• Hagerty's move to retain 100% of insurance premium and risk via the Markel fronting arrangement amplifies underwriting exposure-any increase in loss ratios due to climate change, rising repair costs, or adverse selection in a shrinking insured pool could directly and disproportionately impact net income and EBITDA.
  
• Recent premium growth was below expectations in some regions due to intentional pullback from unprofitable markets (e.g., California, New York) and a new, more selective customer acquisition model; this reliance on targeted growth rather than broad expansion may constrain revenue if return-on-investment focused strategies fail to deliver enough volume.
  
• The classic car market's vehicle valuations are currently "soft to flat," particularly at the high end, and sustained weakness here could lead to lower insured values, slower premium growth, and vulnerability to downturns in alternative asset markets, impacting future topline growth and commission revenues.

Valuation

• The analysts have a consensus price target of $12.0 for Hagerty based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $14.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.8 billion, earnings will come to $228.5 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of $12.13, the analyst price target of $12.0 is 1.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.