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Higher Costs Hurt Hilltop Holdings' Profits: Time to Sell?

Zacks Equity Research

On Mar 4, we issued an updated research report on Hilltop Holdings Inc. HTH. Continuously increasing expenses are likely to hurt the company’s profitability. Moreover, deteriorating performance of its Mortgage Origination segment due to continued fall in loan origination volumes is expected to hurt financials.

Notably, the company has been witnessing downward earnings estimate revisions of late, reflecting that analysts are not very optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for current-year earnings has decreased 10.1% over the past 30 days. Thus, Hilltop Holdings currently carries a Zacks Rank #5 (Strong Sell).

The company’s price performance also does not seem impressive. Its shares have lost more than 20% over the past year.

Given the concerns surrounding the company and downward estimate revisions, we believe that the stock has limited upside potential.

Looking at its fundamentals, while non-interest expenses decreased in 2018, it recorded a five-year (2014-2018) CAGR of 7.6%. This rise was mainly due to higher compensation and benefits costs. Even though the company has recently initiated a cost-saving program, overall expenses are likely to remain elevated in the near term because of its continued investments in franchise and inorganic growth plans.

Moreover, the Mortgage Origination segment’s performance remains a matter of concern for the company. Due to interest rate hikes, mortgage volumes have been declining since the fourth quarter of 2016. Mortgage loan origination volumes decreased 5.3% in 2018 and 6.5% in 2017. In fact, a similar trend is expected to continue in 2019.

Further, the company’s net interest margin (NIM) continues to remain under pressure despite rise in rates. NIM declined from 4.74% in 2014 to 3.55% in 2018. In fact, management expects NIM to remain under pressure in the near term. This will likely hurt profitability.

Nevertheless, rise in demand for loans, inorganic growth efforts and strong balance sheet position are expected to support the company’s overall growth, going forward.

Stocks Worth Considering

Some better-ranked stocks from the finance space are Civista Bancshares, Inc. CIVB, Evercore Inc. EVR and Stifel Financial Corp. SF.

Over the past 30 days, Civista Bancshares witnessed an upward earnings estimate revision of 4.6% for 2019. Its share price has increased 7.6% over the past three months. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Evercore currently carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of 5% for the current year over the past 30 days. Its shares have gained 19.2% in the past three months.

Stifel Financial presently flaunts a Zacks Rank #1. Its earnings estimates have been revised upward by nearly 6.9% over the past 30 days. Its shares have rallied 19.8% in the past three months.

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Civista Bancshares, Inc. (CIVB) : Free Stock Analysis Report
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Evercore Inc (EVR) : Free Stock Analysis Report
Hilltop Holdings Inc. (HTH) : Free Stock Analysis Report
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