It has been about a month since the last earnings report for Arthur J. Gallagher (AJG Quick QuoteAJG - Free Report) . Shares have lost about 2.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Arthur J. Gallagher due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Arthur J. Gallagher  Q4 Earnings Beat, Improve Y/Y

Arthur J. Gallagher & Co. reported fourth-quarter 2019 adjusted net earnings of 58 cents per share, which beat the Zacks Consensus Estimate by 7.4%. Moreover, the bottom line increased 9.4% on a year-over-year basis.

The company’s performance was driven by higher adjusted revenues across Brokerage and Risk Management segments.

Operational Update

Adjusted revenues were $1.7 billion, up 3.9% year over year. However, the top line missed the Zacks Consensus Estimate by 4%.

Arthur J. Gallagher’s total expenses inched up 1.4% year over year to $1.6 billion in the reported quarter. Higher compensation, operating expenses and amortization costs induced this escalation.

Adjusted earnings before interest, tax, depreciation and amortization and change (EBITDAC) in estimated acquisition earnout payables surged 38.1% from the prior-year quarter.

Segmental Results

Brokerage: Revenues of $1.19 billion increased 19% year over year on higher fees, and commission, supplemental and contingent revenues.

Expenses jumped 16.9% from the year-ago quarter.
Adjusted EBITDAC climbed 26.7% from the year-ago level to $266.9 million and margin expanded 150 basis points (bps).

Risk Management: Revenues were up 6.8% year over year to $252.3 million, mainly owing to higher fees.

Expenses rose 9.6% from the prior-year period to $228.6 million.
Adjusted EBITDAC improved 3.6% year over year to $35 million but margin contracted 10 bps.

Corporate: Total revenues of $276.6 million were down 34% year over year due to lower revenues from consolidated clean coal facilities.
EBITDAC was a negative $36.9 million compared with a negative $52.5 million in the year- ago quarter.

Financial Update

As of Dec 31, 2019, total assets were $19.6 billion, up 20.2% from the 2018-end level.

At the end of the quarter, cash and cash equivalents of $0.6 billion dipped 0.4% from the 2018-end level.

As of Dec 31, 2019, shareholders’ equity increased 14.1% to $5.2 billion from the level on Dec 31, 2018.

Acquisition Update

In the quarter, the company closed 11 acquisitions with estimated annualized revenues of about $117 million.

Full-Year Update

For the year, the company’s total revenues increased 3.8% year over year.
In 2019, the company closed a total of 49 buyouts with estimated annualized revenues of $468 million.

Adjusted earnings for the full year were $3.65 per share, up 6.4% year over year.

 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Arthur J. Gallagher has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Arthur J. Gallagher has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.