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Brown & Brown (BRO) Gains 23.4% in a Year: More Room to Run?

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Shares of Brown & Brown, Inc. (BRO - Free Report) have gained 23.3% in a year compared with the industry's increase of 6.2%. The Zacks S&P 500 composite has rallied 16.6% in the said time frame. With a market capitalization of $13.3 billion, the volume of shares traded in the last three months was 1 million, on average.

The company continues to benefit from higher customer retention, strong organic revenue growth and prudent capital deployment.

It has a stellar earnings surprise history too. Its bottom line beat estimates in each of the last four quarters, the average being 13.91%.

Can It Retain the Momentum?

Brown & Brown continues to witness solid performances by its Wholesale Brokerage, Retail and National Programs segments, which majorly contributed to its revenue growth.

The company’s Retail segment accounted for 56.8% of the company’s top line in the first nine months of 2020. A combination of acquisition activity, strong organic revenue growth realized in most lines of business, higher customer retention and increasing premium rates are likely to drive the momentum in the near term.

The company expects premium rate increases and carrier underwriting discipline for certain risks or lines of coverage to continue into 2021.
Backed by its strong organic revenue growth, recent acquisitions and increased profit-sharing contingent commissions, this insurer’s National Programs Segment also contributed 22.9% to the company’s top line in the first nine months of 2020.

These tailwinds have aided the company in maintaining a sustainable revenue growth trend over the past few years. The Zacks Consensus Estimate for the company’s 2020 and 2021 revenues is pegged at $2.59 billion and $2.78 billion, respectively, indicating an increase of 8.3% and 7.1% each from the respective year-ago reported figures. Revenues saw a four-year (2015-2019) CAGR of 9.6%.

Moreover, in the first nine months of 2020, this currently Zacks Rank #2 (Buy) insurance broker closed 16 transactions with estimated annual revenues worth $116 million. Strategic mergers and acquisitions enabled it to widen its geographical presence and boost its top line.

Banking on a strong capital structure and liquidity position, the company deploys capital effectively via share repurchases and dividend hikes to enhance its shareholder value. In October 2020, the company raised dividend by 8.8%, marking an excellent record of 27 straight annual dividend hikes. It has $454 million remaining under its buyback authorization.

The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $1.63 and $1.71, respectively, indicating a rise of 16.4% and 4.6% each from the respective year-earlier reported numbers.

Other Stocks to Consider

Some other top-ranked stocks in the insurance space are Arthur J. Gallagher & Co. (AJG - Free Report) , Alleghany Corporation (Y - Free Report) and eHealth Inc (EHTH - Free Report) .  While Arthur J. Gallagher and Alleghany sport a Zacks Rank #1 (Strong Buy), eHealth carries a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arthur J. Gallagher’s earnings surpassed estimates in each of the last four quarters, the average being 15.79%.

Alleghany’s bottom-line surpassed estimates in two of the last four quarters (missed the other two), the average beat being 34.08%.

eHealth’s earnings surpassed estimates in each of the trailing four quarters, the average being 83.27%.

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