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Arthur J. gallagherAJG shares have gained 22% year to date, which is better than the industry’s rise of 13.8%. The Finance sector has gained 6.9% and the Zacks S&P 500 Composite has gained 17.1% over the same period. With a market capitalization of $49.6 billion, the average volume of shares traded over the last three months was 0.8 million.
Solid performance of the brokerage and risk management segments, strategic purchases to capitalize on growing market opportunities and effective capital deployment are driving AJG’s performance.
This Zacks Rank #3 (Hold) insurance broker’s earnings have grown 19.9% over the past five years, which is better than the industry average of 12.6%. The largest property/casualty third-party claims administrator has an impressive record of beating estimates for the last 20 quarters.
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Can it maintain the momentum?
Arthur J. Gallagher’s Zacks Consensus Estimate for 2023 earnings is pegged at $8.74, indicating 12.9% upside on 17.2% higher revenue of $9.9 billion. The consensus estimate for 2024 earnings is pegged at $9.90, which represents 13.3% upside on 10.4% higher revenues of $10.9 billion.
Long-term earnings growth rate is currently pegged at 12.2%, which is better than the industry average of 10.6%. We estimate a three-year (2022-2025) CAGR of 12.3%. Relying on a strong organic outlook, margin expansion opportunities and an impressive M&A pipeline, AJG is expected to deliver a solid performance in 2023.
Continued solid operating performance in its brokerage and risk management areas should continue to drive its top line. AJG estimates organic growth in 2023 will be around 13%. We estimate the top line to grow at a three-year (2022-2025) CAGR of 11.8%.
Arthur J. Gallagher expects organic growth in the brokerage segment in the upper end of the 8% to 9% range. While we forecast revenues in brokerage to grow at a three-year (2022-2025) CAGR of 12%, risk management revenues are expected to grow at 11.6% over the same time frame.
AJG has an impressive inorganic growth story. It has closed 25 buyouts with estimated annual revenue of $418.1 million and 10 acquisitions so far in the third quarter. The insurance broker has a fairly strong pipeline with revenues of approximately $350 million, tied to approximately 40 term sheets that have either been agreed or are being prepared. The company estimates M&A potential to exceed $3 billion by 2023 and $3 billion in 2024. Management estimates that revenue growth rates for the 2023 acquisitions will generally range from 5% to 20%.
AJG estimates consolidated adjusted EBITDAC margin to be 20% in 2023. The insurance broker also estimates that adjusted EBITDAC margins at brokerages will expand between 60 basis points (bps) and 80 bps in 2023 and adjusted EBITDAC will grow by more than 19% in risk management. We expect adjusted EBITDAC to grow by 17.4% in 2023. Adjusted net margin is estimated to expand by 30 bps.
In its efforts to continuously reward shareholders, AJG engages in effective capital deployment. It raised the dividend at a three-year CAGR (2020-2023) of 5.1%, with the dividend currently standing at 1.1%. AJG also has $1.5 billion of share buyback authorization remaining.
Stocks to consider
Some of the better-ranked stocks in the insurance industry are Erie Compensation Eri, brown and gray BRO and Marsh and McLennan Companies MMC.
The Zacks Consensus Estimate for Erie Indemnity’s 2023 and 2024 earnings indicates year-over-year growth of 32.9% and 16.7%, respectively. Its growth score is B. Over the past 60 days, consensus estimates have increased by 5.4% for 2023 and 8.3% for 2024. ERIE delivered a four-quarter average earnings surprise of 2.05%. Shares are up 15.4% year to date. It currently sports a Zacks Rank #1 (Strong Buy). you can see The full list of today’s Zacks #1 Rank stocks here,
The Zacks Consensus Estimate for Brown & Brown’s 2023 and 2024 earnings indicates respective 18% and 10% year-over-year growth. Over the past 60 days, consensus estimates have increased 7.2% for 2023 and 6.5% for 2024. BRO delivered a four-quarter average earnings surprise of 3.98%. It has a Zacks Rank #2 (Buy). BRO shares have gained 28.8% year to date.
Marsh & McLennan posted an average four-quarter earnings surprise of 3.44%. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates respective 12.6% and 9.4% year-over-year growth. Over the past 60 days, consensus estimates have increased by 0.1% for 2023 and 1.3% for 2024. The expected long-term earnings growth rate is estimated at 10.5%. MMC holds a Zacks Rank #2. Its shares have increased by 19.1% so far.
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Marsh & McLennan Companies, Inc. (MMC): Free Stock Analysis Report
Arthur J. Gallagher & Company (AJG): Free Stock Analysis Report
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Erie Indemnity Company (ERIE): Free Stock Analysis Report
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