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On Aug 7, we reiterated our Neutral recommendation on Hilltop Holdings Inc. (HTH - Analyst Report) based on its strong second-quarter 2013 results, partly offset by higher expenses and moderate growth outlook.

Why the Retention?

Estimates for this bank holding company and property-casualty insurer have remained steady since the company reported its second-quarter 2013 results on Aug 6. Hilltop reported second-quarter operating earnings per shareof 24 cents. The results lagged the Zacks Consensus Estimate of 31 cents. However,revenues of $307.6 million outperformed the same benchmark by 10.6%. Nonetheless, both earnings and top line stood higher than the year-ago results of loss per share of 19 cents and $39.2 million, respectively.

Growth was driven by improved premiums, interest and non-interest income. Conversely, higher-than-expected underwriting, interest, catastrophe and other expenses along with elevated provision for losses partially mitigated the desired upside. As a result, combined ratio and performance of insurance operations witnessed deterioration.

The Zacks Consensus Estimate for 2013 and 2014 remained static at $1.39 per share and $1.43 per share, respectively, over the last 7 days. However, when compared against a loss of 13 cents per share in 2012, the estimates appear favorable.

Meanwhile, earnings are expected to climb 2.5% year over year in 2014. Consequently, with the Zacks Consensus Estimate for 2013 and 2014 depicting slight upward pressure on the stock in the near term, Hilltop now has a Zacks Rank #2 (Buy).

The PlainsCapital acquisition has inflated Hilltop’s assets, investment portfolio and cash flow, paving the way for efficient capital deployment, while mitigating risks from low interest rates and strengthening operating leverage. However, given the absence of comparable growth parameters in the year-ago periods, growth in the last 3 quarters is yet to instil confidence.

The insurance operations are also posing a weak trend. It is likely that the robust growth may moderate in the upcoming quarters. Yet, a diversified business mix, strong securities portfolio, sturdy risk-based capitalizationand adequate liquidity indicate consistent growth ahead.

Other Stocks to Consider

Apart from Hilltop, other stocks that are outperforming in the insurance sector include HCI Group Inc. (HCI - Snapshot Report), Everest Re Ltd. (RE - Analyst Report) and Chubb Corp. (CB - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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