Shares of Dallas, TX-based financial holding company Hilltop Holdings Inc. HTH plunged by more than 8% on Friday morning in reaction to the earnings miss from its most recent quarterly results. The company’s stock had rallied pre-earnings to trade at about $24.65 per share. At the time of this writing, the price has dropped to a five-month low of $22.60.
On Jan. 30, the company announced that it had agreed to sell its wholly-owned subsidiary, National Lloyds Corp., to Align Financial Holdings in a deal worth $150 million. National Lloyds is a specialty property insurer for lower-value homes and mobile homes in Dallas. This sale will allow Hilltop to focus on its core operating businesses, which include PlainsCapital Bank, PrimeLending and HilltopSecurities.
Highlights from recent quarter results
Hilltop missed the consensus analyst estimates on earnings for the fourth quarter after posting earnings per share of 54 cents. Annual earnings also came short of expectations at $2.44 per share. Analysts were expecting earnings of $2.45 per share for the year. The company’s fourth-quarter net income increased 75% to $49.4 million from the same period last year while annual net income soared 85.5% to $225.3 million.
Hilltop Holdings posted fourth-quarter net revenue of $410.6 million, which was better than the analyst estimate of about $400 million, while annual revenues of $1.65 billion narrowly beat the consensus of $1.64. Interest income for the quarter was $111 million, down 5.5% from the prior-year quarter, while non-interest income surged 25.5% to $299.3 million.
However, gains in non-interest income were significantly offset by an increase in non-interest expenses, which soared 8.5% to $336.9 million during the quarter.
Last year, the company repurchased 3.4 million shares of common stock at an average of $21.64 per share. Hilltop plans to extend this program through 2021.
Is the pullback an opportunity to buy?
Hilltop’s plunge in stock price could present an interesting opportunity for value investors. The company’s shares now trade at a price-earnings ratio of 10.59, the lowest level since 2015. But this is still higher than the price-earnings ratio of its more reputable peer Comerica Inc. CMA, which stands at 7.83 at the time of writing.
However, when we factor in growth prospects, the valuation becomes more appealing to those looking to hold the stock long term. Hilltop’s estimated five-year price-earnings to growth ratio of 0.79 shows that it could be undervalued when you factor in expected earnings over the next five years. In comparison, Comerica trades at a PEG ratio of 2.56.
The company’s forward dividend yield of 1.30% is not appealing. However, when you look at the payout ratio of 0.14, the opportunity to increase dividend payments is massive. The share buyback program could also play a part in boosting the stock price, which means that shareholders could still get a fair price should they decide to cash out their holdings.
In summary, Hilltop Holdings appears to be trading under pressure after missing earnings estimates in the most recent quarter. However, when you dig deeper into the numbers, the pullback might be a great opportunity to buy the stock.
Disclosure: No positions in stocks mentioned.
Read more here:
- Juniper Networks: Can Cloud Inspire a Turnaround?
- Has Manchester United Turned a Corner?
- How Do You Tackle Volatility in 2020?
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here
