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Hilltop Holdings: A Strong Buy

Zacks Equity Research

On Mar 19, Zacks Investment Research upgraded Hilltop Holdings Inc. (HTH) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Following a solid fourth-quarter 2012 earnings, Hilltop has been witnessing appreciation in its earnings estimates. In an effort to diversify its operations from core P&C insurance toward a profitable banking operation, this property-casualty (P&C) insurer acquired PlainsCapital Corp.– a highly lucrative $1 billion banking entity – on Nov 30. The acquisition will add significant stability and visibility to the operating leverage in the future.

On Mar 15, Hilltop reported fourth-quarter 2012 earnings of 10 cents per share, improving from the Zacks Consensus Estimate of 8 cents and year-ago period’s earnings of 9 cents a share. Earnings were primarily aided by higher revenue that escalated to $134.9 million, ahead of both the Zacks Consensus Estimate of $52.0 million as well as the year-ago quarter’s $38.2 million.

Higher interest and non-interest income led by the incorporation of PlainsCapital’s financials for Dec 2012 contributed to the upside in earnings. Further, the acquisition enhanced total assets to $7.29 billion at 2012-end from $925.4 at 2011-end. Hilltop remains well capitalized with Tier 1 leverage ratio of 13.08% and total capital ratio of 17.81% at 2012-end, all well above the regulatory requirements.

PlainsCapital is expected to be highly accretive to earnings from 2013 onward. Hilltop’s P&C insurance segment (:NLASCO) and free cash of $200 million at 2012-end, should further position it to generate higher growth in the future.

Subsequently, the Zacks Consensus Estimate for 2013 increased 3.2% to $1.30 per share, over the last 7 days. For 2014, estimates improved 1.6% to $1.29 per share, over the last 7 days. No downward revisions have been witnessed for both the years. Moreover, the Most Accurate Estimate for Hilltop’s 2013 earnings stands at $1.40, resulting in a positive ESP (read: Zacks Earnings ESP: A Better Method) of 7.69%.

Other Stocks to Consider

Apart from Hilltop, other stocks that are outperforming in the insurance sector include EMC Insurance Group Inc. (EMCI), XL Group Plc (XL) and Navigators Group Inc. (NAVG). All these stocks carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on XL

Read the Full Research Report on HTH

Read the Full Research Report on EMCI

Read the Full Research Report on NAVG

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