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Why Hold Strategy is Apt for Hilltop Holdings (HTH) Stock?

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Hilltop Holdings Inc. (HTH - Free Report) remains well positioned to grow organically, given a consistent rise in loan and deposit balances. Also, the gradual ease in margin pressure with improvement in the rate environment should further boost the company’s top-line growth.

However, the company’s rising expenses might hamper profitability growth. Also, deteriorating performance of its Mortgage Origination segment is expected to hurt financials in the near term.

Hilltop Holdings’ price performance too does not seem impressive. Shares of the company have lost 19.6% so far this year compared with 5.5% decline for the industry it belongs to.

Further, the company’s Zacks Consensus Estimate for the current-year earnings has remained stable at $1.57 over the past 30 days. Thus, the stock currently carries a Zacks Rank #3 (Hold).

Looking at the fundamentals, the company’s net interest income has increased at a three-year (2014-2016) CAGR of 15.8%. Moreover, the continued rise in loan and deposit balances are expected to further aid top-line growth in the quarters ahead.

Also, with improvement in the rate environment, pressure on the company’s net interest margin (NIM) has been easing gradually. Given the continued loan growth along with expectations of future rate hikes, margins are anticipated to improve further.

Further, supported by various strategic acquisitions, the company has grown inorganically. Such acquisitions have helped it in expanding operations, and offered stability and visibility to operating leverage.

However, its expenses have increased at a CAGR of 21% over the last three years (as of the end of 2016) primarily due to higher compensation and benefits costs. In fact, costs are expected to keep rising in the future due to the company’s continued investments in franchise. This is likely to hamper bottom-line growth.

Further, because of the hike in interest rates, the company’s mortgage loan origination volumes have been declining since the fourth quarter of 2016. Management expects the declining trend to continue in 2017 as well. Thus, deteriorating performance of the company’s Mortgage Origination segment remains a cause for concern as it might hurt financials, going forward.

Mentioned below are a few better-ranked stocks from the same space.

Carolina Financial Corporation (CARO - Free Report) has witnessed an upward earnings estimate revision of 8.9% for the current year over the past 60 days. Its share price has surged 51.2% in a year’s time. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Farmers Capital Bank Corporation’s (FFKT - Free Report) Zacks Consensus Estimate for the current year has been revised nearly 5.1% upward over the past 60 days. Its shares have gained 25.9% in the last 12 months. It also sports a Zacks Rank #1.

Popular, Inc. (BPOP - Free Report) carries a Zacks Rank #2 (Buy). The stock has witnessed an upward earnings estimate revision of 2.7% for the current year over the past 60 days and rallied 5% in the past 12 months.

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