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The Zacks Analyst Blog Highlights: Hilltop Holdings, Homeowners Choice, HCC Insurance Holdings, athenahealth and Epocrates

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For Immediate Release

Chicago, IL – January 10, 2013 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Hilltop Holdings Inc. (HTH - Analyst Report), Homeowners Choice Inc. (HCI - Snapshot Report), HCC Insurance Holdings Inc. (HCC - Snapshot Report), athenahealth Inc. (ATHN - Analyst Report) and Epocrates Inc. .

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Here are highlights from Wednesday’s Analyst Blog:

Hilltop Upped to Outperform

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).

 

Athenahealth to Buy Epocrates

 

Recently, athenahealth Inc. (ATHN - Analyst Report), a provider of cloud-based services for physician practices and inpatient settings, inked a definitive agreement to acquire Epocrates Inc. for about $293 million in cash. The aggregate purchase price is based on a price of $11.75 per share, which reflects a 22% premium over the closing price of Epocrates on January 4, 2013.

athenahealth plans to fund the acquisition with available cash and available borrowing capacity from its existing credit facility. Exiting the third quarter, the company had cash and cash equivalents and short-term investments of $180.2 million, up 52.1% year over year, with no outstanding debt.

The Acquiree

Epocrates is a provider of point-of-care digital solutions in the healthcare industry. Its portfolio consists of well-regarded medical applications, which are currently available on major U.S. mobile platforms. The company launched its mobile and web-based electronic health record (EHR) solutions in July 2011. Epocrates reported revenues of $113.3 million in 2011, up 9% year over year.

Stockholders at Epocrates (accounting for 17.5% of the company’s outstanding common stock) have expressed that they are in favor of the transaction. The acquisition is expected to close in the second quarter of 2013, subject to standard closing conditions.

Benefit of the Acquisition

The acquisition will enable athenahealth to increase its user network as Epocrates currently serves over a million healthcare professionals, including 330,000 physicians in the U.S. Further, the buyout will enhance brand awareness for athenahealth as Epocrates is recognized by 90% of physicians in the U.S.

Given the widespread mobile user base of Epocrates, athenahealth is expected to improve efficiency of new mobile workflows. Moreover, the mobile expertise of Epocrates in conjunction with athenahealth’s cloud-based network should enable the latter to commercialize novel mobile applications.

We believe that the acquisition is part of the company’s strategy to expand beyond the current cloud-based services – athenahealth’s mainstay. We are optimistic about the company gaining a competitive edge over industry stalwarts, following the acquisition.

In addition, the acquisition is expected to improve athenahealth’s access to small group physician practices with Epocrates’ credible client base. The buyout might offset the trend toward consolidation of small physician group practices, which is a potential negative factor for athenahealth. This presents a solid growth opportunity in the near-term.    

Deal Under Scrutiny

Following its recent announcement, the agreement has been subjected to legal scrutiny. The deal is currently entangled in lawsuits as law firms assert that the agreement does not uphold the interest of Epocrates’ stockholders. This stems from their belief that athenahealth is underpaying for the acquisition.

 

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