On Jan 23, we downgraded our recommendation on Hilltop Holdings Inc. (HTH) 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 growth.
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 operations.
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).
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