Hilltop Holdings, Inc. – Value Analysis (NYSE:HTH) : June 13, 2017

Capitalcube gives Hilltop Holdings, Inc. a score of 43.

Our analysis is based on comparing Hilltop Holdings, Inc. with the following peers – Flagstar Bancorp, Inc., Waterstone Financial, Inc., Travelers Companies, Inc., Erie Indemnity Company Class A, HomeStreet, Inc., Cincinnati Financial Corporation, Zurich Insurance Group AG Sponsored ADR, Arch Capital Group Ltd. and Allstate Corporation (FBC-US, WSBF-US, TRV-US, ERIE-US, HMST-US, CINF-US, ZURVY-US, ACGL-US and ALL-US).

Fundamental Overview

Hilltop Holdings, Inc. has a fundamental score of 43 and has a relative valuation of NEUTRAL.

Fundamental Score

Company Overview

  • It’s current Price/Book of 1.40 is about median in its peer group.
  • The market expects faster earnings growth from HTH-US than from its peers and also a turnaround in its current ROE.
  • HTH-US has relatively low profit margins and median capital efficiency.
  • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth.
  • Over the last five years, HTH-US‘s return on equity has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • Compared with the peers chosen, HTH-US has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company is likely overinvesting in a business with only median returns.
  • HTH-US might have enough interest coverage to take-on additional debt prudently.

Drivers of Margin

  • HTH-US‘s operations are relatively price constrained with high operating costs.
  • The company’s comparatively low proportion of net interest income (net interest income/total revenues) of 23.56% versus peer median of 30.41% suggests that HTH-US‘s lending operations might be constrained on pricing. In addition, HTH-US‘s pre-tax margin is also below the peer median (13.70% compared to 17.15%) suggesting relatively high operating costs.
  • The company’s proportion of fee based income (i.e. non interest income/total revenues) of 76.44% is around peer median. In addition, HTH-US‘s proportion of overhead costs (i.e. non interest expense/total revenues) of 83.27x is also around peer median — suggesting no cost advantage on fee-based overhead operations.
Drivers of Margins

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Differentiated; High Cost, Commodity; High Cost, Commodity; Low Cost

Company Profile

Hilltop Holdings, Inc. is a financial holding company, which provides business and consumer banking services through PlainsCapital Bank. It engages in the provision of banking, mortgage, and origination, financial, advisory and insurance services. The company operates through the following segments: Banking, Broker-Dealer, Mortgage Origination, and Insurance. The Banking segment includes business banking, personal banking, and wealth and investment management. The Broker-Dealer segment includes the following lines of business: public finance, capital markets, retail, structured finance, clearing services, and securities lending. The Mortgage Origination segment, through the Bank’s subsidiary, PrimeLending, handles loan processing, underwriting and closings in-house. The Insurance segment operates through NLC, which provides fire and limited homeowners insurance for low value dwellings and manufactured homes. Hilltop Holdings was founded in July 1998 and is headquartered in Dallas, TX.