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Willis Towers (WLTW) Up 4.4% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Willis Towers Watson Public Limited Company . Shares have added about 4.4% in that time frame, outperforming the market.

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

Willis Towers Earnings Beat, Revenues Miss in Q3

Willis Towers Watson plc reported third-quarter 2016 adjusted net income of $1.04 per share that beat the Zacks Consensus Estimate by a penny. Earnings also surged 85.7% year over year.

Including amortization, restructuring costs, as well as integration and transaction expenses, net loss came in at $0.23 per share. The company had reported earnings of $1.70 per share in the year-ago quarter.

Operational Updates

Adjusted revenues improved 2% (15% constant currency growth, 2% organic growth), year over year to $1.78 billion. Revenues missed the Zacks Consensus Estimate of $1.82 billion.

On a year-over-year basis, commissions and fees increased 3% to $1.7 billion

Income from operations plunged to $1 million from $104 million in the year-ago quarter.

Adjusted EBITDA was $275 million or 15.5% of adjusted revenues. The reported figure was higher than $307 million, or 17.6% of revenues, in the year-earlier quarter.

Quarterly Segment Update

Human Capital & Benefits: Commissions and fees of $747 million were up 2% year over year (5% higher on constant currency basis and 2% higher on organic basis). Total revenues of $747 million inched up 0.8%. Operating margin was 16%.

Corporate Risk & Broking: Commissions and fees of $546 million improved 5% (9% constant currency growth but flat on organic basis) year over year. Total revenues of $554 million climbed 5.9% year over year. Operating margin was 11% in the quarter.    

Investment, Risk & Reinsurance: Commissions and fees of $292 million declined 9% (down 5% on both constant currency and organic basis). Total revenues of $1.2 billion inched up 0.9% from the prior-year quarter. Operating margin was 8%.

Exchange Solutions: Commission and fees of $161 million improved 25% (up 25% on constant currency basis and up 25% on organic basis). Total revenues of $161 million jumped 25.9% year over year. Operating margin was 12%.

Share Repurchase

Willis Towers Watson has bought back $233 million worth of shares year to date and intends to make repurchases worth $300 million in 2016.

2016 Guidance

Willis Towers Watson reiterated adjusted earnings per share between $7.60 and $7.80. Reported earnings per share are expected between $2.30 and $2.50 as against the previous estimation of $2.48 to $2.68.

Constant currency revenue growth is expected to be in the range of 9–10%, while reported revenue growth is estimated at 6%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to seven lower.

VGM Scores

At this time, Willis Towers Watson's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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