Hilltop to Buy SWS Group - Analyst Blog


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Boosting its inorganic growth strategy through acquisitions, Hilltop Holdings Inc. ( HTH ) has offered to acquire SWS Group Inc. ( SWS ) for an amount worth $231 million. However, the deal awaits approval from the acquiree or the target firm.

Hilltop already holds a 24% stake in SWS Group, after the company invested $50 million in the latter in 2011 through a five-year senior unsecured term loan. Additionally, SWS had issued Hilltop a warrant to purchase 8,695,652 shares of SWS common stock, with par value of 10 cents per share, exercisable at a price of $5.75 per share.

Following the investment in SWS Group in 2011, Hilltop went on an acquisition spree and purchased U.S.-based financial services company PlainsCapital Corp. for $813.5 million at the end of 2012. Subsequent to this acquisition, Hilltop became a financial bank holding company. Further in Sep 2013, Hilltop acquired Texas-based First National Bank (FNB) from the Federal Deposit Insurance Corporation (FDIC) for about $2.2 billion.

Hilltop has grown by leaps and bounds on the back of these acquisitions, as reflected by a huge surge in shareholder equity, assets, revenue and earnings.The deals have helped the company diversify its operations from core property- casualty (P&C) insurance to profitable banking operations, thereby substantially adding stability and visibility to the operating leverage in future.

The complete acquisition of SWS Group also complements Hilltop's strategy to expand its banking operations. Hence, the company has offered a price of $7.00 per share for the remaining 76% stake of SWS Group, which equates to $231 million, 50% of which is expected to be funded by cash and the remaining 50% by stock.

Market Reaction

While the announcement of the proposed deal preceded the opening bell on Jan 10, shares of Hilltop hit a 52-week high of $25.61, closing at $25.40, up 8.4% from the prior-trading session. This banking and insurance company's shares have escalated a whopping 80% since the beginning of 2013.

Friday's closing price represents a robust one-year return of about 83.9% against a return of 25.2% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 415.5K.

The encouraging momentum of this Zacks Rank #1 (Strong Buy) stock is fuelled by improved operating growth coupled with a strong competitive position. The estimated long-term earnings growth is pegged at 10.0%, higher than the peer group average of 8.4%. On the other hand, shares of SWS Group, carrying a Zacks Rank #3 (Hold), also shot up over 20% to $7.28 on Friday.

Some other well-ranked financial stocks that warrant a look are PartnerRe Ltd. ( PRE ) and RLI Corp. ( RLI ). Both these stocks carry the same Zacks Rank as Hilltop.

HILLTOP HLDGS (HTH): Free Stock Analysis Report

PARTNERRE LTD (PRE): Free Stock Analysis Report

RLI CORP (RLI): Free Stock Analysis Report

SWS GROUP INC (SWS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
More Headlines for: FNB , HTH , PRE , RLI , SWS

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