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On Mar 21, we reiterated our Outperform recommendation on Hilltop Holdings Inc. (HTH - Analyst Report) based on its recent business expansion following the acquisition of PlainsCapital Corp. in Nov 2012.

Why the Retention?

Estimates for Hilltop, the newly-turned bank holding company that continues to be a property-casualty insurer as well, have witnessed radical escalation since it reported amplified top line and balance sheet in its fourth-quarter 2012 results, on Mar 15.

Hilltop’s fourth quarter earnings per share (EPS) as well as revenues of 13 cents and $139 million topped the Zacks Consensus Estimate of 8 cents and $52 million, respectively. Both EPS and top line also stood higher than year-ago results.

Improved results and expanded business operations signify noticeable growth ahead. The Zacks Consensus Estimate for 2013 rose 3.2% to $1.30 per share, whereas it grew 1.7% to $5.06 per share for 2014, over the last 7 days. Meanwhile, the Most Accurate Estimate for Hilltop’s 2013 earnings stands at $1.40, resulting in a positive ESP (read: Zacks Earnings ESP: A Better Method) of 7.7%.

Consequently, with the Zacks Consensus Estimates for both 2013 and 2014 showing steady upward pressure on the stock in the near term, Hilltop now has a Zacks Rank #1 (Strong Buy).

What is the cause for the strong positive bias on the company? The recent PlainsCapital acquisition has not only inflated the company’s assets, but also boosted its investment portfolio and cash flows, paving the way for efficient capital deployment.

Moreover, the deal has helped Hilltop diversify its operations from core property-casualty (P&C) insurance toward a profitable banking operation, thereby enhancing the company’s operating and competitive efficiencies. Strong capitalization and stable ratings outlook further raise shareholders’ confidence.

On the other hand, effective distribution initiatives are also helping NLASCO, the insurance arm of Hilltop, to generate higher premiums. We believe Hilltop should continue to tread ahead with its strategic approach in order to capitalize on the opportunities that the markets provide on stabilization.

Other Stocks to Consider

Apart from Hilltop, other stocks that are outperforming in the financial sector include Progressive Corp. (PGR - Analyst Report), XL Group Plc (XL - Analyst Report) and Navigators Group Inc. (NAVG - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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