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One of the more profitable companies I have followed and discussed on Seeking Alpha for some time is Homeowners Choice (HCI). I initially wrote about Homeowners when it was trading at $12.58 with a PE of 9.3 in April 2012. The stock has continued to produce exceptional earnings growth and stock price appreciation. Currently, the stock is trading at $25.62, an increase of 104% since I initially discovered this small-cap gem. However, this small-cap growth and income story only gets better with each earnings release.

Homeowners Choice has exceeded consensus earnings estimates for seven straight quarters with a blowout fourth quarter in 2012. The story continues to get juicier as HCI has a current dividend yield of 3.55% with a payout ratio built of 25% that is positioned for future dividend growth. Homeowners has increased its dividend by 50% in the past year.

Homeowners Choice, with a market cap of $280 million, provides property and casualty homeowners' insurance, condominium owners' insurance and tenants' insurance. Despite its strong earnings growth, Homeowners has a price earnings ratio of 8.22, which is significantly lower than the industry average PE of 14.

Homeowners Choice reported a 92% increase in income available to common stockholders in the fourth quarter of 2012 compared with one year earlier. Income in the fourth quarter of 2012 totaled $13.1 million or $1.19 diluted earnings per common share, compared with $4.6 million or $0.62 diluted earnings per common share in the fourth quarter of 2011.

Gross premiums earned in the fourth quarter of 2012 increased 44.8% to $72.0 million from $49.8 million in the same year-ago period. The increase was primarily due to policies acquired from Citizens Property Insurance Corporation in November 2012.

For the full year 2012, Homeowners Choice reported a 125% increase in income compared with one year earlier. Income available to common stockholders for 2012 totaled $29.8 million or $3.02 diluted earnings per common share compared with $9.1 million or $1.34 diluted earnings per common share for 2011.

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Gross premiums earned in 2012 increased 62.7% to $233.6 million from $143.6 million in 2011. The increase was primarily related to additional premiums in 2012 on the renewal of policies assumed from HomeWise Insurance Company in November 2011 combined with policies assumed from Citizens in November 2012.

Net premiums earned for 2012 increased 79.0% to $157.7 million from $88.1 million in 2011. Premiums ceded for 2012 were 32.5% of the company's gross premiums earned compared with 38.7% during 2011. The ratio decreased because the November 2011 and 2012 assumptions occurred late in Florida's hurricane season, requiring minimal reinsurance coverage for the remainder of the 2012 reinsurance contract year.

First Call analysts' consensus is for 2013 EPS of $3.19. However, Homeowners has no long-term debt so there is a high probably that the company can acquire more assets to boost earnings in 2013 and 2014. Additionally, Homeowners should be the beneficiary of a higher PE ratio in 2013. A mere increase in the PE from its current 8.22 to 10 results in a stock price of $31.19, a 22% increase from current levels.

First Call consensus has a "strong buy" recommendation with a 1.3 rating.

Source: Homeowners Choice Continues To Beat Consensus Expectations