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Here's What Makes Brown & Brown (BRO) an Attractive Pick

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Brown & Brown, Inc. (BRO - Free Report) has been in investors’ good books on the back of higher commission and fees, increasing premium rates, new business growth and acquisitions.

Shares of this Zacks Rank #2 (Buy) stock have gained 25.9% in a year’s time, outperforming the industry’s increase of 5.2%. The company’s efforts to ramp up growth, and its solid capital position should continue to drive shares higher.


The stock has seen its estimates for 2020 and 2021 move up nearly 7% and 6.6%, respectively in the past 30 days, reflecting investor optimism.

The company delivered an earnings surprise in each of the last four reported quarters with the average beat being 7.95%. In the last reported quarter, the company reported earnings of 34 cents, which beat the Zacks Consensus Estimate by 17.2% and improved 6.3% year over year on the back of higher commissions and fees.

The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $1.53 and $1.62, respectively indicating increase of nearly 9.2% and 5.6% from the year-ago reported figure.

Let’s analyze the factors that make this stock a compelling choice for investors right now.

Brown & Brown’s top line has been improving over the years on the back of higher commissions and fees and improving net investment income across the company’s segments. The metric witnessed a four-year CAGR (2015 -2019) of 9.6% and increased 8.6% in the first half of 2020. Commission and fees also increased at a four-year CAGR of 9.5% during 2015-2019. Net new and renewal business, acquisitions, and cash received for profit-sharing contingent commissions will continue to drive commission and fees in the near term.

Also, the company’s Retail segment contributes a major portion of its revenues on the back of acquisition activity and higher profit-sharing contingent commissions. Riding on increased new business, higher customer retention and increasing premium rates across most lines of business, this segment contributed 58.6% to the company’s top-line growth in the first half of 2020.

Moreover, Brown & Brown remains focused on net new business growth and acquisitions for expanding existing capabilities, reinforcing global presence and boosting top-line growth. In the first six months of 2020, the insurer closed 10 transactions with estimated annual revenues of $85 million. Consistent investments along with solid earnings will aid this insurance broker in its inorganic efforts. From 1993 through the second quarter of 2020, it acquired 546 insurance intermediary operations. It continues to make investments to drive growth and margins.

Brown & Brown’s debt levels have been decreasing over the past few quarters. Though the company’s long-term debt as of Jun 30, 2020 increased 4.4% from the 2019-end, its total debt/ total capital ratio improved 40 basis points from 2019-end level. Also, the company’s times interest earned of 10.6 at second-quarter end was better when compared with the 2019-end figure of 9.3, implying that its earnings are sufficient to cover debt obligations. Also, the company had access to $600.0 million of additional borrowings under the revolving credit facility. Including the expansion options under all existing credit agreements, the company had access to up to $1.3 billion of incremental borrowing capacity as of Jun 30, 2020.

Other Stocks to Consider

Some other top-ranked stocks in the insurance industry include eHealth, Inc. (EHTH - Free Report) , Assurant Inc. (AIZ - Free Report) and Horace Mann Educators Corporation (HMN - Free Report) . While eHealth sports a Zacks Rank #1 (Strong Buy), Assurant and Horace Mann Educators carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

eHealth provides private health insurance exchange services to individuals, families, and small businesses in the United States and China. It surpassed estimates in each of the last four quarters, with the average surprise being 82.02%.

Assurant provides lifestyle and housing solutions that support, protect, and connect consumer purchases in North America, Europe and the Asia Pacific. It surpassed estimates in three of the last four quarters, with the average beat being 6%.

Horace Mann Educators operates as a multiline insurance company in the United States. It underwrites and markets personal lines of property and casualty insurance. It surpassed estimates in three of the last four quarters, with the average beat being 24.77%.

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