08-17-2017: Hilltop Holdings, Inc. (HTH): Southwestern-Based Regional Bank with Nationwide Presence

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Recommendation

Hilltop Holdings, Inc.

Hilltop Holdings, Inc. (HTH) was a Microsoft Money pick which in turn relied upon Morningstar recommendations. Like most Microsoft products, we feel this didn't match up to expectations for either Microsoft or Morningstar regarding any ability they have to pick stocks, and we probably won't use them again. Morningstar stopped supplying analyst analysis on the stock several years ago with a final parting, "Hilltop needs to make more acquisitions to continue growth." Hilltop certainly has proceeded to do that. It is a fast-growing regional bank in mainly in the Southwest with particular emphasis on business-friendly Texas, but also active in Arizona and many other parts of the western states. It has basically four operations including a savings & loan operation, mortgage lending, and insurance branch, and various other commercial services.

The stock is somewhat out of favor at the moment with weak sentiment and a downward trajectory. However, even though instituions are dumping, Dimensional Fund Advisors is prominent among large holders which we regard as very positive. Another very positive aspect is a five-star highest rating from Standard & Poor's. Other than that, researchers are mainly neutral to negative, but analysts are somewhat positive. Earnings projections are optimistic given rising interest rates affecting very many competitors in the same industry group, which is relatively strong. HTH is somewhere in the middle of these in terms of stock share performance.

A look at the "channeling" potential section of our report suggests this would be a good trading range stock, currently at the lower end of a recent trading range. Various technical indicators suggest there may be a turnaround shortly in stock share price performance. Management has heads in ver many branches making over a million dollars in annual salary, and this somewhat weighs on earnings in our opinion.

There no CEO Letter to Shareholders, which we regard as a negative indication that management is not as concerned about shareholders as it should be. The stock pays a dividend of less than 1%. We did not like Management's Discussion of Results of Operations because it seemed to obfiscate certain problems which were unclear to us with a very wordy attempt to explain.

Some researchers we regard highly such as Market Grader have an outright sell on the stock. It blames this on overall fundamentals which we confirm as "marginal" in our Zenith Index evaluation.

The best possible way to low-risk trade this particular stock would be a sort of "in-and-out" system at either end of trading ranges. We rate the stock as a "buy" but it could turn around and go south on one. Optimism wanes along with the U.S. Dollar and diminishing near-term Federal Reserve interest rate hike probabilities further backed by rising treasury bond and note prices.

Sites we visited had trouble deciding whether to classify this company as a bank or a finance-lending operation or an insurance company, as all three segments significantly affect earnings. The insurance group looks a little weak of late.



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Zenith Index

Under current market conditions, a Zenith Index Score of 1.20 or above is required for a positive rating on this factor. 1.21 -1.30 is considered acceptable, 1.30-1.40 is considered strong and
> 1.40 is considered exceptionally strong. Accounting statements in this section often contain mistakes, especially in earlier years' totals, but data is deemed sufficient for us to give a rating. More accurate financial statements follow in the next section.

Hilltop Holdings Inc. (HTH)                               Exchange: NYSE
200 Crescent Court
Suite 1330                       Sector: Financial
Dallas, TX 75201                 Industry:Mortgage Investment

Hilltop Holdings Inc. provides business and consumer banking services in
Texas, California, Florida, Ohio, Washington, Arizona, Maryland, North
Carolina, and other states. Its Banking segment offers savings,
checking, interest-bearing checking, and money market accounts;
certificates of deposit; lines and letters of credit, home improvement
and equity loans, and loans for purchasing and carrying securities,
equipment loans and leases, agricultural and commercial real estate
loans, and other loans; and commercial, industrial, and single family
residential mortgage loans. This segment also provides term finance on
commercial real estate properties; construction finance; treasury
management; and check cards, safe deposit boxes, Internet banking, bill
pay, overdraft, and automated teller machine services. In addition, it
offers wealth and investment management services, including estate
planning, management and administration, investment portfolio
management, employee benefit accounts, and individual retirement
accounts. Its Broker-Dealer segment advises on public finance; trades
and underwrites U.S. government and government agency bonds, corporate
and municipal bonds, mortgage-backed, asset and commercial
mortgage-backed securities, and structured products; provides asset and
liability management advisory, structured asset and liability, commodity
hedging advisory, clearing, and securities lending services; and
operates as a securities broker. The company-Ęs Mortgage Origination
segment offers fixed rate conventional and adjustable rate mortgages,
jumbo loans, and federal housing administration and veteran affairs
loans. Its Insurance segment provides personal product line comprising
homeowners, dwelling fire, manufactured home, flood, and vacant
policies; and commercial lines that include commercial multi-peril,
builders risk, builders risk renovation, sports liability, and inland
marine policies. The company was founded in 1998 and is headquartered in
Dallas, Texas.

Last Trade:  25.49                           52-Week Range:  30.60 -  21.04
Employees: 5,400                             Avg.Volume:     252,895 Shares

Corporate Governance:
Pillar scores are Audit: 1; Board: 10; Shareholder Rights: 10; Compensation: 4.
         (A lower number means less governance risk.)

EPS:  1.47    Dividend Amount: $ 0.24          Yield:  0.94%
             Ex-Dividend Date: Aug 11, 2017    Payout Ratio:  10.11

Key Statistics:

    Trailing P/E:  17.27              Forward P/E (est.):  13.26
                                           Target Price:  30.50

Qrtly Stock Price Growth (yoy):  13.74%               Beta:   1.01
Qrtly S&P Index   Growth (yoy):   8.90%        Short Ratio:   5.75%
    Qrtly Revenue Growth (yoy):  11.33%         Shares Out:  96330000
   Qrtly Earnings Growth (yoy):   0.00%

          Book Value:  19.17                    Debt/Equity:   0.00%
    Price/Book Value:   1.32        Operating Profit Margin:  16.48%
         Price/Sales:   1.46                  Profit Margin:  10.52%
         Market Cap:   2,440,000,000       Return on Equity:   9.60%
    Enterprise Value:               0      Return on Assets:   1.34%

    Operating Cash Flow:   -269,600,000
         Free Cash Flow:     -1,375,137



Annual Income Statement:                          (All numbers in thousands)
  Period Ending                             12/31/2016  12/31/2015  12/31/2014

  Total Revenue                              1,742,919   1,697,480   1,188,080
  Cost of Revenue                               15,843      15,523      15,742
  Gross Profit                                       0           0           0

Operating Expenses:
  Research & Development                             0           0           0
  Selling, General & Administrative          1,412,471   1,340,016     965,353
  Non-Recurring Expenses                             0           0           0
  Other Operating Expenses                      40,620      12,715      16,933
  Total Operating Expenses                           0           0           0

Operating Income or Loss                             0           0           0

Income from Continuing Operations:
  Total Other Income/Expenses Net                    0           0           0
  Earnings Before Interest & Taxes             273,985     329,226     190,052
  Interest Expense                              42,580      45,732      11,886
  Income Before Taxes                          231,405     283,494     178,166
  Income Tax Expense                            83,461      70,915      65,608
  Minority Interest                              4,011       1,171         787

Net Income from Continuing Op.s                145,894     210,973     111,650

Non-recurring Events:
  Discontinued Operations                            0           0           0
  Extraordinary Items                                0           0           0
  Effect of Accounting Changes                       0           0           0
  Other Items                                        0           0           0
  Net Income                                   145,894     210,973     111,650
  Preferred Stock & Other Adjustments                0           0           0

Net Income Avail to Common Shares              145,894     209,119     105,947




Annual Cash Flow Statement:                   (All numbers in thousands)
  Period Ending                         12/31/2016    12/31/2015    12/31/2014

  Net Income                               145,894       210,973       111,650

Operating Activities:
  Depreciation                             -49,765       -83,360       -83,279
  Adjustments to Net Income               -653,064      -650,069      -461,958
  Changes in Accounts Recv'bls                   0             0             0
  Changes in Liabilities                   -68,203      -104,897        59,283
  Changes in Investories                         0             0             0
  Changes in other Oper'g Acts              79,587       148,881       -47,506

Total Cash Flow f Operations              -183,348        35,737       -91,420

Investing Activities:
  Capital Exenditures                      -41,941       -31,270       -43,186
  Investments                             -524,652       320,718       233,610
  Other Cash Flows fr Investing             73,032       152,841        69,400

Total Cash Flows from Investing           -493,561       442,289       259,824

Financing Activities:
  Dividends Paid                            -5,011        -4,761        -6,521
  Sale of Purchase of Stock                  4,139      -144,096      -144,096
  Net Borrowings                           549,279       127,944       420,966
  Other Cash Flows fr Financing            149,821      -600,743        69,400

Total Cash Flows from Financing            698,228      -621,656      -101,352

  Effect of Exchange Rate Chg                    0             0             0

Change in Cash & Cash Equiv.                21,319      -143,630        67,052



Annual Balance Sheets:                              (All Numbers in Thousands)
  Period Ending                          12/31/2016    12/31/2015    12/31/2014
Current Assets:
  Cash & Cash Equivalents                 1,995,566     1,994,979     1,922,536
  Short Term Investments                          0             0             0
  Net Receivables                         1,497,741     1,362,499       167,884
  Inventory                                       0             0             0
  Other Current Assets                            0             0             0
  Total Current Assets                    3,493,307     3,357,478     2,090,420

  Long-Term Investments                   9,055,862     8,294,516     6,940,618
  Property, Plant & Equipt                  242,003       299,708       343,936
  Goodwill                                  251,808       251,808       251,808
  Intangible Assets                          44,695        54,868        59,783
  Accumulated Amortization                        0             0             0
  Other Assets                              865,759       828,497       665,312
  Deferred LT Asset Charges                       0             0             0

Total Assets                             12,738,062    11,867,001     9,242,416

Current Liabilities:
  Accounts Payable                                0             0             0
  Current Portion LT Debt                 1,571,178     1,077,417       762,744
  Other Current Liabilities               7,063,811     6,952,683     6,369,892
  Total Current Liabilities               8,634,989     8,030,100      7,132,636

  Long Term Debt                                  0             0             0
  Other Liabilities                       1,571,178     1,077,417       762,744
  Deferred LT Liab. Charges               7,063,811     6,952,683     6,369,892
  Minority Interest                           4,011         1,171           787
  Negative Goodwill                           4,011         1,171           787

Total Liabilities                        10,482,629     9,824,319     7,658,268

Stockholder Equity:
  Misc. Options, Warrants                         0             0             0
  Redeemable Preferred Stock                      0             0             0
  Preferred Stock                                 0             0             0
  Common Stock                                  985           989           902
  Retained Earnings                         295,568       155,475       -45,957
  Treasury Stock                                  0             0             0
  Capital Surplus                         1,572,877     1,577,270     1,390,788
  Other Stockhohlder Equity                   1,079         3,220           651
  Total Stockholder Equity                1,870,509     1,736,954     1,460,452

Net Tangible Assets                       1,574,006     1,430,278     1,148,861



Hilltop Holdings Inc. (HTH)                 [Indices near +3.0, near zero,
                                            or < zero bear special attention.]
P/E Ratio Tests:
P/E Ratio < 28?            1.6213          P/E Ratio > 5?             1.0000
P/E Ratio Vs Growth Rate:  0.0000          Forward P/E Ratio < 28?    2.1116
Price/Sales Ratio < 2.3?   1.5753          Inventory/Sales < 5%?      1.0000
Sales < $1 Billion?        0.5738          Operating Margin < 7.5%?   0.4551

Balance Sheet Tests:
Debt/Equity < 0.40?        1.0000          Long-Term Debt Service:    3.0000
LTD Being Reduced?         0.0000          Short-Term Debt Service:   3.0000
Current Ratio > 2?         0.2023          Working Capital >= 1.5?    3.0000
Leverage Ratio < 20%?      3.0000          Debt/Assets < 1?           3.0000
Quick Ratio > 1?           3.0000          Inventory Turnover > 1?    1.0000
Share Equity Increase:     2.2662          Market Cap.< 1.5 Billion?  0.6148
                                           Intangibles < 3% Assets?   1.2888
Income Tests:
Profit Margin < 7.5%?      1.4026          EPS Annual Growth > 10%?   0.1433
Dividend Yield > 2.0%?     2.1277          EPS 3-yr Growth > 15?      0.1089
Enterprise Value/Revenue   1.3988          EPS Growth Consistent?     0.0000
Enterprise Value/EBITDA:   3.0000          Collection < 45 days?      0.1435
EPS Qrtly Growth > 10%?    0.0000          Gross Pft/Cur. LTD > 1?    0.0000
                                           Borrowing Int. Rate < 6%?  3.0000
Stock Performance Tests:
Volatility > 25%?          1.2497          % Held by Insiders < 5%?   0.2288
Beta > 1.25?               0.8080          % Held by Institut. < 50?  0.9524
50 Da MA > 200 Da MA?     -0.0989          % Held by Institut. > 30?  1.7500
52-Wk Change vs. S&P 500:  1.2127          Short Ratio > 5?           1.1500
Price/Book Value < 3?      2.2562          Short % of Float > 20?     0.0875
Return on Assets > 17%?    0.0788          Average Volume > 100,000?  2.5289

Cash Flow Tests:
Oper. C.F. > Lever'd C.F:  3.0000          Positive Free Cash Flow?  -1.0000
Positive Oper. Cash Flow? -1.0000          Price to C.F.Ratio < 14?:  3.0000
                                           Cash Flow / Assets > 10%?  1.0795

HTH    Hilltop Holdings Inc.               Overall Zenith Index:      1.2517


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Financial Statements

Income Statement:

Balance Sheet:

Cash Flow Statement:




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Average to Current P/E Ratios
              (HTH)     Hilltop Holdings Inc.

                               2012    2013    2014    2015    2016

          Annual Earnings:    -0.10    1.40    1.17    2.09    1.48
Average Price During Year:    10.27   15.61   21.85   20.61   20.76

                P/E Ratio:   102.72   11.15   18.68    9.86   14.03

 Average 5-Year P/E Ratio  =  31.29
             Current Price =  26.3

Previous 5 Quarter Earnings:   0.32    0.53    0.36    0.27    0.63

           Current Annualized (Last Four Quarters) Earnings =  1.26
                                                           ________
                                 Average PE / Current PE =     1.50
                                                           --------

                                      ...a number above 1.00 is good
                                                1.00 or below is bad


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Intrinsic Value (DCF)

Intrinsic Value by Discounted Cash Flow Method:

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Institutional Orders to Buy or Sell:

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Sentiment

sentiment

Zenith uses the "sentiment" score above or below 50 to award a positive or negative point in the Decision Matrix.

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Short Interest Ratio

As the short interest rises as a percentage of average daily share volume (Days to Cover), this is considered a measure of negative sentiment. Similarly, a decrease in that percentage is considered positive sentiment.

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Channeling Potential

 
The summary below includes a value for `Degree,' which refers on a
scale of 1 to 10 the range of a channel in the period under consi-
deration compared to the total range of price movement. It also looks
for the last closing price to be within the channel, otherwise zeroed.
The `Index' is the `Degree' weighted for volatility.  Generally, the
the higher the index, the more suitable is the stock for trading as
a `rolling stock' between channel high and low points.

Results for HILLTOP HOLDINGS INC.:
Symbol? HTH
Total Months Available: 120
       Months in Cycle?   4

Months Covered by Periods:  12

Period 1           Period 2          Period 3
   H1      L1        H2      L2        H3      L3
  29.99   21.04     30.60   25.86     28.86   24.49

RANGE   =  30.60  TO   21.04            Close =  25.33
CHANNEL =  28.86  TO   25.86           Degree =   3
Volatility =  11.84%                    Index =   3
Channel Chart



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MACD Histogram Divergence

The theory is that connecting the two most recent peaks or valleys of the MACD histogram will signal the direction of the next major move.



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Intraday Chart

2 Days:



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Val Idea

4 out of 8 favorable, (neutral opinion.)

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Neural Network Prediction

"Neurostock" can only track long trades. Therefore its performance, as tracked by itself on stocks which are consistently falling, may not appear as good as it could if each "sell" signal were a "short sale."

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2 out of 3 of the ultimate systems favor a downmove.


System Below:
Short term outlook: Positive: Bright Green, Negative: Bright Red
Long term outlook: Postive: Dark Green, Negative: Dark Red.




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Recommendation

Decision Weighting Factors
FactorsWeighted Points
News + 1
Comparison - 1
Industry + 1
Bond Issue + 1
Zenith Index + 1
Non-GAAP vs. GAAP Earnings + 1
Cash Flow - 1
Average to Current P/E + 1
Ratios + 1
Market Grader - 1
Intrinsic Value DCF - 1
Tangible Book Value + 1
Projected Earnings + 1
Research Reports - 1
Analysts + 1
Executive Perquisites - 1
Insider Activity - 1
Institutional Activity - 1
Management Reporting - 1
Short Interest + 1
Sentiment - 1
Standard & Poor's + 1
Moving Average + 1
Right Time Study - 1
MACD Histogram Divergence - 1
Val Idea 0
Stock Consultant - 1
Point & Figure + 1
Wall Street Analyzer - 1
Marketspace Chart + 1
Time Series Chart + 1
Neural Network + 1
Stock Options + 1
Ultimate Trading Systems - 1
Total + 3
Place 1,140 shares of Hilltop Holdings, Inc.(HTH) on the Active List.