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We have retained our Neutral recommendation on Willis Group Holdings Plc (WSH - Analyst Report) as declining investment income, rising operating expenses and weakness in the U.S. economy are likely to weigh on company growth.

Why the Reiteration?

Willis has managed to deliver positive earnings surprise in 3 out of last 4  quarters with an average beat of negative 2.8%.

Willis has been witnessing a decline in investment income over the past few years owing to lower net yields on cash and cash equivalents. As interest rates have continued to experience a sharp decline worldwide, investment income is expected to remain under pressure in the near term.

However, top-line improved due to acquisitions and increased commissions and fees. In the upcoming period, the pending acquisitions of the company (Prime Professions Limited and Gras Savoye) are expected to help Willis write more business thereby aiding revenue growth. Additionally strong balance sheet and steady cash flow is likely to help Willis engage in capital deployment for buybacks, dividend payouts, debt repayments, acquisitions and investments that drive and support growth.

Conversely, operating expenses of Willis have surged over a period of time. During the first quarter expenses escalated owing to higher salaries and benefits, aggressive hiring in the latter half of 2012, annual pay reviews and higher expense for incentives. Rising expenses adversely affected margin expansion and profitability. Nevertheless the recent cost savings initiative of the company through headcount reduction is expected to help the company combat this issue to some extent.

This insurance brokerage company with a Zacks Rank #4 (Sell) is set to release its second quarter 2013 results on Jul 24 after the closing bell. The Zacks Consensus Estimate for the second quarter of 2013 is currently pegged at 57 cents per share representing a year-over-year decline of 3.9%.

Other Stocks to Consider

Among other insurers, Validus Holdings Limited (VR - Snapshot Report), Brown & Brown Inc. (BRO - Snapshot Report) and Endurance Specialty Holdings Ltd. (ENH - Snapshot Report) carry a Zacks Rank #2 (Buy) and appear impressive.

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