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On May 30, we reiterated our Outperform recommendation on Hilltop Holdings Inc. (HTH - Analyst Report) based on its strong first-quarter 2013 results and business diversification following the acquisition of Plains Capital Corp. in Nov 2012.

Why the Retention?

Estimates for this bank holding company and property-casualty insurer have remained steady since the company reported its first-quarter 2013 results on May 6.

Hilltop reported first-quarter 2013 operating earnings per shareof 39 cents and revenues of $280.5 million modestly exceeded the Zacks Consensus Estimate for earnings of 31 cents and revenues of $273 million, respectively. Both earnings and top line also stood higher than the year-ago results of 1 cent per share and $38.1 million, respectively.

The remarkable upside was driven by improved premiums, interest and non-interest income along with lower-than-expected underwriting and other expenses, which also resulted in improved combined ratio.

A diversified business mix and adequate liquidity signify consistent growth ahead. The Zacks Consensus Estimate for 2013 rose 2.3% to $1.33 per share, while it remained static at $1.29 per share for 2014, over the last 30 days. Consequently, with the Zacks Consensus Estimate for 2013 depicting slight upward pressure on the stock in the near term, Hilltop now has a Zacks Rank #2 (Buy).

What is the cause for the strong positive bias on the company? Hilltop’s fundamentals look compelling following the PlainsCapital acquisition and have boosted the company’s operating and competitive efficiencies. On one hand, higher premiums, deposits, interest and non-interest income showcase consistent improvement.

Hilltop enjoys a healthy and risk-free balance sheet with a strong investment portfolio and operating cash flow. A sturdy risk-based capitalization also reflects a stable and adequate financial surplus and debt leverage outlook for the company.

Other Stocks to Consider

Apart from Hilltop, other stocks that are outperforming in the insurance sector include Assured Guaranty Ltd. (AGO - Snapshot Report), XL Group Plc (XL - Analyst Report) and Old Republic International Corp. (ORI - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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