On Jan 23, we downgraded our recommendation on
Hilltop Holdings Inc.
) to Neutral. While the acquisitions in the past year have
accelerated the operating leverage and capital position, these
have also added to the execution risks, reflecting growth
moderation in the upcoming quarters.
Why the Downgrade?
Estimates for this bank holding company and property-casualty
insurer have not witnessed any noticeable upside since the
company reported its third-quarter 2013 results on Nov 12. While
the company has diversified into banking operations with the
acquisitions of PlainsCapital and FNB, growth already began to
moderate sequentially. Even the SWS Group deal is on the verge of
a fallout or demand extra cash outflow as its investigators
consider the deal undervalued.
On the other hand, insurance operations continue to face
challenges from intense price competition and weak underwriting
performance. Nonetheless, improved capital ratios and operating
cash flow reflect adequate liquidity and scope for future
We opine that Hilltop should continue to advance with its
strategic approach to capitalize on the opportunities that the
markets provide on stabilization. A couple of quarters going
ahead, should help gain more clarity on the sustenance of the
Hilltop reported third-quarter operating earnings per shareof
36 cents and revenues of $285 million, both of which modestly
exceeded the Zacks Consensus Estimate for earnings of 31 cents a
share and revenues of $263 million, respectively.
Both earnings and the top line also figured significantly
higher than the respective year-ago quarter results of a loss of
7 cents per share and $43 million.
The Zacks Consensus Estimate for 2013 inched down a penny to
$1.33 per share, while it remained intact at $1.60 per share for
2014, over the last 60 days. Consequently, with the Zacks
Consensus Estimate for both 2013 and 2014 depicting no clear
directional pressure in the near term, Hilltop now has a Zacks
Rank #3 (Hold).
Other Worthy Stocks to Consider
Other better-ranked stocks in the insurance sector include
Aspen Insurance Holdings Ltd.
CNA Financial Corp.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ACE LIMITED (ACE): Free Stock Analysis Report
ASPEN INS HLDGS (AHL): Free Stock Analysis
CNA FINL CORP (CNA): Free Stock Analysis
HILLTOP HLDGS (HTH): Free Stock Analysis
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