NEW YORK (TheStreet) -- An unsolicited offer from Hilltop Holdings (HTH) - Get Hilltop Holdings Inc. Report sent SWS Group (SWS)  soaring on Friday. By market close, Hilltop added 8.4% to $25.41, while SWS popped 20.1% to $7.28.

SWS Group, a Dallas-based financial services company, confirmed it had received an unsolicited acquisition proposal from Hilltop for all outstanding common stock for $7 a share. The transaction will be comprised of 50% cash and 50% Hilltop common stock. The offer puts shares at a 15.5% premium to Thursday's close of $6.06 a share. Hilltop Holdings currently owns 24% of SWS' common stock.

"We believe that Hilltop's and SWS's businesses are highly complementary, and that the proposed transaction is a compelling opportunity for SWS's stockholders," said Hilltop chairman Gerald J. Ford in a statement. "The transaction represents a premium to market for SWS stockholders, while also enabling stockholders to participate in the continued growth of the combined enterprise. In addition, we believe it will create benefits from being part of a larger organization that is strongly capitalized and positioned to compete on an expanded scale."

TheStreet Ratings team rates SWS GROUP INC as a Sell with a ratings score of D. The team has this to say about their recommendation:

"We rate SWS GROUP INC (SWS) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Capital Markets industry and the overall market, SWS GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for SWS GROUP INC is currently extremely low, coming in at 13.07%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 0.40% significantly trails the industry average.
  • Net operating cash flow has significantly decreased to -$80.16 million or 50.84% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.8%. Since the same quarter one year prior, revenues slightly dropped by 7.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

TheStreet Recommends

TheStreet Ratings team rates HILLTOP HOLDINGS INC as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate HILLTOP HOLDINGS INC (HTH) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, impressive record of earnings per share growth and solid stock price performance. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • HTH's very impressive revenue growth greatly exceeded the industry average of 9.0%. Since the same quarter one year prior, revenues leaped by 555.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Insurance industry. The net income increased by 914.3% when compared to the same quarter one year prior, rising from -$4.05 million to $32.96 million.
  • Net operating cash flow has significantly increased by 3898.28% to $448.01 million when compared to the same quarter last year. In addition, HILLTOP HOLDINGS INC has also vastly surpassed the industry average cash flow growth rate of -23.48%.
  • HILLTOP HOLDINGS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. Stable earnings per share over the past year indicate the company has sound management over its earnings and share float. We anticipate these figures will begin to experience more growth in the coming year. During the past fiscal year, HILLTOP HOLDINGS INC's EPS of -$0.12 remained unchanged from the prior years' EPS of -$0.12. This year, the market expects an improvement in earnings ($1.36 versus -$0.12).
  • Powered by its strong earnings growth of 614.28% and other important driving factors, this stock has surged by 60.59% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.