On Aug 7, we reiterated our Neutral recommendation on
Hilltop Holdings Inc.
) based on its strong second-quarter 2013 results, partly offset
by higher expenses and moderate growth outlook.
Why the Retention?
Estimates for this bank holding company and property-casualty
insurer have remained steady since the company reported its
second-quarter 2013 results on Aug 6. Hilltop reported
second-quarter operating earnings per shareof 24 cents. The
results lagged the Zacks Consensus Estimate of 31 cents.
However,revenues of $307.6 million outperformed the same
benchmark by 10.6%. Nonetheless, both earnings and top line stood
higher than the year-ago results of loss per share of 19 cents
and $39.2 million, respectively.
Growth was driven by improved premiums, interest and
non-interest income. Conversely, higher-than-expected
underwriting, interest, catastrophe and other expenses along with
elevated provision for losses partially mitigated the desired
upside. As a result, combined ratio and performance of insurance
operations witnessed deterioration.
The Zacks Consensus Estimate for 2013 and 2014 remained static
at $1.39 per share and $1.43 per share, respectively, over the
last 7 days. However, when compared against a loss of 13 cents
per share in 2012, the estimates appear favorable.
Meanwhile, earnings are expected to climb 2.5% year over year
in 2014. Consequently, with the Zacks Consensus Estimate for 2013
and 2014 depicting slight upward pressure on the stock in the
near term, Hilltop now has a Zacks Rank #2 (Buy).
The PlainsCapital acquisition has inflated Hilltop's assets,
investment portfolio and cash flow, paving the way for efficient
capital deployment, while mitigating risks from low interest
rates and strengthening operating leverage. However, given the
absence of comparable growth parameters in the year-ago periods,
growth in the last 3 quarters is yet to instil confidence.
The insurance operations are also posing a weak trend. It is
likely that the robust growth may moderate in the upcoming
quarters. Yet, a diversified business mix, strong securities
portfolio, sturdy risk-based capitalizationand adequate liquidity
indicate consistent growth ahead.
Other Stocks to Consider
Apart from Hilltop, other stocks that are outperforming in the
insurance sector include
HCI Group Inc.
Everest Re Ltd.
). All these stocks carry a Zacks Rank #2 (Buy).
CHUBB CORP (CB): Free Stock Analysis Report
HCI GROUP INC (HCI): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
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