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Growth & Income

Arthur J. Gallagher & Co. (AJG - Snapshot Report) recently delivered better than expected fourth quarter results, driven by 26% revenue growth. Analysts have been raising their estimates off the strong beat, sending the stock to a Zacks #1 Rank (Strong Buy).

Based on current consensus estimates, analysts project 30% EPS growth in 2012 and 12% growth in 2013. On top of this, the company pays a dividend that yields a solid 4.0%.

Company Description

Arthur J. Gallagher & Co. is an insurance brokerage and risk management services firm. The company was founded in 1927 and is headquartered in Itasca, Illinois. It has a market cap of $3.8 billion.

Fourth Quarter Results

The company delivered better than expected results for the fourth quarter after the bell on January 31. Earnings per share came in at 35 cents, beating the Zacks Consensus Estimate by a penny. It was a solid 19% increase over the same quarter in 2010.

Sales rose 26% to $578 million, well ahead of the Zacks Consensus Estimate of $548 million. Adjusted revenues surged 22% in the Brokerage division, due in large part to acquisitions and a 5% increase in organic commission, fee and supplemental commission revenues.

The Risk Management segment saw adjusted top-line growth of 13%, driven by organic growth of 13%.

Outlook

Analysts have been raising their estimates for both 2012 and 2013 following the strong Q4, sending the stock to a Zacks #1 Rank (Strong Buy).

The Zacks Consensus Estimate for 2012 is now $1.78, representing 30% growth over 2011 EPS. The 2013 consensus estimate is currently $2.00, corresponding with 12% growth.

Analysts believe that modestly improving pricing and economic trends, as well as continued acquisition activity, will drive strong EPS growth over the next couple of years.

Dividend

Arthur J. Gallagher also pays a dividend that yields a stellar 4.0%. It recently increased its dividend by 3%, and since 2000, it has raised it at a compound annual rate of 9%:

AJG: Arthur J. Gallagher & Co.

Valuation

Shares of AJG trade at 18.6x forward earnings, a premium to its 10-year median of 15.7x. But given its strong growth projections, this certainly isn't unreasonable.

Its price to cash flow ratio of 14.0 is in-line with its historical median.

The Bottom Line

With rising earnings estimates, strong growth projections, a solid 4.0% dividend yield and reasonable valuation, Arthur J. Gallagher & Co. offers investors a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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