Goosehead down YTD after earnings fail to impress Wall Street

Shares in Goosehead Insurance Inc have underperformed leading US insurance intermediaries and the wider market this year but have recovered some ground following a steep drop after the release of underwhelming fourth-quarter 2023 earnings.

The Texas-based independent personal lines insurance agency reported Feb. 21 that its revenue increased to $63 million from $57.4 million compared to the prior-year quarter, missing analyst forecasts of $68.4 million.

Soon after, the company's stock fell from a year-to-date high of $91.79 a share on Feb. 16 to a period low of $53.16 a share on April 25, an approximately 42% decline. However, in recent weeks the company has seen a steady rise and was trading at $63.99 a share as of market close May 30.

This trajectory contrasted with both the S&P 500 and S&P Insurance indexes, which have risen 10.39% and 11.97% since the start of the year.

Goosehead's earnings showed a slowdown in topline growth, according to Piper Sandler analyst Paul Newsome.

"There was an operational impact related to the pandemic where they essentially needed to restructure their salesforce and I think that had probably the most profound impact on their topline growth," Newsome said. "There's also issues related to the weather-disrupted home insurance market in Texas and really everywhere."

Headwinds

While Goosehead's first-quarter 2024 earnings were viewed as an improvement overall, difficulties remain, according to a research note from William Blair analyst Adam Klauber.

"Given near-term headwinds that limit 2024's potential, we believe Goosehead's eventual recovery may be turning into more of a 2026 story; consensus expectations for revenue growth to reaccelerate to nearly 30% in 2025 appear optimistic, in our view," Klauber wrote.

Goosehead, which announced the appointment of a new CEO in February, has seen its short interest fluctuate this year but it rose from about 7% in mid-February to over 14% by the middle of May.

Goosehead did not respond to a request for comment.

Newsome added that difficulties in the home market have cascaded down, and a company like Goosehead that generates sales via leads from mortgage originators are adversely impacted by a downturn in home sales.

Newsome attributed the recent partial recovery to a course-correction in perception of the company's fourth quarter.

"Management has been out talking to investors trying to assure them that the issues they're seeing are fairly temporary," Newsome said. "But mostly I think it's just recovery from an overreaction to a bad quarter."

Other insurance intermediaries have fared differently, and shares in large companies such as Arthur J. Gallagher & Co. and Brown & Brown Inc. have risen 10.7% and 24%, respectively, from the start of the year.