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Here's Why Hold Strategy is Apt for Arthur J. Gallagher Stock
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Arthur J. Gallagher & Co. (AJG - Free Report) is well poised for growth backed by strong revenues, several mergers and acquisitions (M&A), and robust cash flows.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $4.25 and $4.54, indicating growth of 16.4% and 6.8%, respectively, from the prior-year figure. The stock has seen its estimates for 2020 and 2021 move up 6% and 5.6%, respectively, in the past 30 days.
Return on equity, a measure to identify how efficiently the company is utilizing its shareholders’ fund, was 16% in second-quarter 2020, up from 14.2% in the year-ago period.
The company beat estimates in the trailing four reported quarters, the average surprise being 11.10%. In the last reported quarter, the company’s earnings of 94 cents per share outpaced the Zacks Consensus Estimate by 30.6% on the back of lower expenses, higher revenues and strong margin expansion across Brokerage segment.
Factors Driving Performance
This Zacks Rank #3 (Hold) insurance broker continues to benefit from higher revenues driven by solid performance at its brokerage and risk management segments. Both the segments have been aided by organic growth efforts and M&A activities. Rising premium rates and gradual improvement in customer renewals from April and May are likely to provide a boost to the company’s organic growth efforts.
Management estimates third-quarter organic growth to be 5% for the brokerage segment, same as the second quarter.
Moreover, the company’s numerous cost-control initiatives have led to a strong operational performance, which in turn, has benefited earnings. It expects EBITDAC to improve in the third quarter and increase further in the fourth quarter at the Risk Management segment.
Furthermore, Arthur J. Gallagher continues to undertake M&A activities for enhancing product offerings and expanding global presence. The company’s merger and acquisition pipeline is quite strong with revenues worth about $300 million associated with about 40 term sheets either agreed upon or being prepared. It remains optimistic about the M&A activities returning to normal levels later this year.
It has to be noted that the company’s strong revenues also include contributions from international operations. With a strong network of more than 300 sales and service offices in 49 countries, the company remains focused on harnessing opportunities primarily in Australia, Canada, the Caribbean, New Zealand and the U.K. This, in turn, is likely to boost international contribution to revenues.
Additionally, the company’s sturdy cash flows continue to pave the way for a strong liquidity position, with the help of which it pursues strategic initiatives.
Shares of this insurance broker have gained 19.1% in a year compared with the industry’s growth of 7.2%.
However, we remain concerned about its high debt levels, which continues to induce rise in interest expenses. Nevertheless, we believe that the company’s strong fundamentals are likely to help it going forward.
Stocks to Consider
Some better-ranked companies in the insurance space are eHealth, Inc. (EHTH - Free Report) , Brown and Brown, Inc. (BRO - Free Report) and First American Financial Corporation (FAF - Free Report) . While eHealth sports a Zacks Rank #1 (Strong Buy), Brown & Brown and First American Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
eHealth delivered four-quarter average earnings surprise of 82.02%.
Brown and Brown delivered four-quarter average earnings surprise of 7.95%.
First American Financial delivered four-quarter average earnings surprise of 20.84%.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
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Here's Why Hold Strategy is Apt for Arthur J. Gallagher Stock
Arthur J. Gallagher & Co. (AJG - Free Report) is well poised for growth backed by strong revenues, several mergers and acquisitions (M&A), and robust cash flows.
The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $4.25 and $4.54, indicating growth of 16.4% and 6.8%, respectively, from the prior-year figure. The stock has seen its estimates for 2020 and 2021 move up 6% and 5.6%, respectively, in the past 30 days.
Return on equity, a measure to identify how efficiently the company is utilizing its shareholders’ fund, was 16% in second-quarter 2020, up from 14.2% in the year-ago period.
The company beat estimates in the trailing four reported quarters, the average surprise being 11.10%. In the last reported quarter, the company’s earnings of 94 cents per share outpaced the Zacks Consensus Estimate by 30.6% on the back of lower expenses, higher revenues and strong margin expansion across Brokerage segment.
Factors Driving Performance
This Zacks Rank #3 (Hold) insurance broker continues to benefit from higher revenues driven by solid performance at its brokerage and risk management segments. Both the segments have been aided by organic growth efforts and M&A activities. Rising premium rates and gradual improvement in customer renewals from April and May are likely to provide a boost to the company’s organic growth efforts.
Management estimates third-quarter organic growth to be 5% for the brokerage segment, same as the second quarter.
Moreover, the company’s numerous cost-control initiatives have led to a strong operational performance, which in turn, has benefited earnings. It expects EBITDAC to improve in the third quarter and increase further in the fourth quarter at the Risk Management segment.
Furthermore, Arthur J. Gallagher continues to undertake M&A activities for enhancing product offerings and expanding global presence. The company’s merger and acquisition pipeline is quite strong with revenues worth about $300 million associated with about 40 term sheets either agreed upon or being prepared. It remains optimistic about the M&A activities returning to normal levels later this year.
It has to be noted that the company’s strong revenues also include contributions from international operations. With a strong network of more than 300 sales and service offices in 49 countries, the company remains focused on harnessing opportunities primarily in Australia, Canada, the Caribbean, New Zealand and the U.K. This, in turn, is likely to boost international contribution to revenues.
Additionally, the company’s sturdy cash flows continue to pave the way for a strong liquidity position, with the help of which it pursues strategic initiatives.
Shares of this insurance broker have gained 19.1% in a year compared with the industry’s growth of 7.2%.
However, we remain concerned about its high debt levels, which continues to induce rise in interest expenses. Nevertheless, we believe that the company’s strong fundamentals are likely to help it going forward.
Stocks to Consider
Some better-ranked companies in the insurance space are eHealth, Inc. (EHTH - Free Report) , Brown and Brown, Inc. (BRO - Free Report) and First American Financial Corporation (FAF - Free Report) . While eHealth sports a Zacks Rank #1 (Strong Buy), Brown & Brown and First American Financial carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
eHealth delivered four-quarter average earnings surprise of 82.02%.
Brown and Brown delivered four-quarter average earnings surprise of 7.95%.
First American Financial delivered four-quarter average earnings surprise of 20.84%.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>