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Is This the Right Time To Dump Hilltop Holdings (HTH) Stock?

Zacks Equity Research

On Jul 11, 2016, we issued an updated research report on Hilltop Holdings Inc HTH.

Hilltop’s exposure to economic volatility deteriorated its underwriting capabilities as well as cash position. Additionally, the acquisitions of PlainsCapital, FNB and SWS Group not only increased financial risks for the company’s consolidated operating leverage but also for its leverage ratio by creating the need of more investment. Negatives like these have undermined Hilltop’s near-term earnings potential.

Hilltop has been facing sluggish growth since 2015. Some of the company’s key revenue drivers like financial advisory fees, mortgage originations and fixed-income sales have been adversely affected by volatility in interest rates and fixed income markets. This has resulted in deterioration of non-interest income.

Hilltop’s operations in areas like Texas and Arizona, which are highly prone to weather-related issues, remain exposed to risks of catastrophe loss. As a result, Hilltop’s claim ratios, combined ratio and underwriting expense ratios have deteriorated significantly. Also, uncertainties related to catastrophes and premiums generation hurt solid underwriting growth.

The Zacks Consensus Estimate has decreased over the last 60 days. Also, Hilltop has reported negative earnings surprises in three of the last four quarters. Presently, the stock carries Zacks Rank #4 (Sell).

However, the company’s prudent capital management has helped it in mitigating some of the aforesaid market risks along with strengthening its operations and improving its competitive capabilities.

Recently, the company announced a share buyback program worth $50 million to enhance shareholders value.  In addition, the company’s strategic acquisitions, healthy balance sheet, free cash flow, capital ratios and investment portfolio are expected to support long-term growth.

Stocks to Consider

Some better ranked stocks from the same space are First Horizon National Corporation FHN, Community Trust Bancorp Inc. CTBI and First Bancorp FBNC. Each of these stocks holds Zacks Rank #2 (Buy).

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