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On January 9, we upgraded Hilltop Holdings Inc. (HTH - Analyst Report) to Outperform from Neutral based on the recent PlainsCapital acquisition. This property-casualty (P&C) insurer secured a Zacks Rank #1 (Strong Buy) shortly after closing the acquisition last month.

Why the Upgrade?

Hilltop’s third-quarter 2012 loss came in at 7 cents a share, well below the Zacks Consensus Estimate of earnings of 1 cent per share. The company broke-even in the year-ago quarter. Revenues climbed 5.5% year over year to $42.8 million, also breezing past the Zacks Consensus Estimate of $42.0 million. Over the past four quarters, Hilltop has delivered an average negative surprise of 437.5%.

Following the release of the third quarter results, the Zacks Consensus Estimate of a loss for 2012 has gone up 31.3% to 21 cents per share. However, the Zacks Consensus Estimate for 2013 earnings grew 5.0% to $1.25 per share, reflecting a positive outlook post PlainsCapital acquisition.

Hilltop’s growth story appears gripping, particularly, after it completed the acquisition of the U.S.-based financial services company – PlainsCapital Corp. – for about $700 million,on December 3.The acquisition is consistent with Hilltop’s growth goals and will help it fortify the company’s market position in the primary operating markets of Texas, Oklahoma, Georgia, Tennessee and Arizona.

The acquisition is set to help Hilltop diversify its operations from core P&C insurance to profitable banking operation. PlainsCapital is a highly lucrative $1 billion banking entity that benefits from the ongoing low interest rate environment and the refining housing sector, as these factors provide promising opportunities for investors to park their funds in such high-quality banks.

As expected, Hilltop witnessed an immediate ascent in its market price following the successful culmination of the acquisition. A stable ratings outlook and a share buyback program further raise shareholders’ confidence.

Other Stocks to Consider

Besides Hilltop, other stocks in the P&C sector that are currently performing well include Homeowners Choice Inc. (HCI - Snapshot Report) and HCC Insurance Holdings Inc. (HCC - Snapshot Report). Both the companies carry a Zacks Rank #1(Strong Buy).

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