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On Feb 26, 2013, we upgraded Willis Group Holdings plc (WSH - Analyst Report) to Neutral from Underperform due to its solid performance in the fourth quarter. Moreover, management is reviewing the organizational design to drive cost savings for this Zacks Rank #3 (Hold) insurance broker.

Why the Upgrade?

Willis Group posted adjusted net income from continuing operations of 45 cents per share, surpassing the Zacks Consensus Estimate by a penny.

The company generated organic growth in commissions and fees of 7.5% in the fourth quarter, the highest growth rate since the third quarter of 2006, with contribution from all the segments.

Further, Willis Group, to enhance its profitability, is undertaking a cost savings initiative. Management is reviewing the organizational design and expects to reduce headcount. It expects to realize cost savings of $20 million to $25 million in 2013 and annualized cost savings of approximately $25 million to $30 million.

The review will be completed in the first quarter of 2013. As a result, Willis Group expects to incur a pre-tax charge of about $35 million to $45 million in the first quarter of 2013.

Moreover, Willis Group has consistently tried to enhance shareholder value via dividend increase as well as share buybacks. It already exhausted its $100 million buyback program in 2012 and recently hiked dividend by 3.7%. The company’s dividend yield is 3.05%, ahead of the industry yield of 1.64% and Marsh & McLennan Companies Inc.’s (MMC - Analyst Report) yield of 2.55%.  

The Zacks Consensus Estimate for 2013 is currently pegged at $2.66 per share, up 3% year over year.

Other Stocks to Consider

Among other insurance brokers, Brown & Brown Inc. (BRO - Snapshot Report), and Arthur J Gallagher & Co. (AJG - Snapshot Report) carry a Zacks Rank #2 (Buy), and appear impressive.

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