Back to top

Image: Bigstock

Why Should You Hold Marsh & McLennan (MMC) in Your Portfolio?

Read MoreHide Full Article

Marsh & McLennan Companies, Inc. (MMC - Free Report) has been showing a consistent operating performance over the past many quarters. Its strategic initiatives drove business expansion.

Over the past 60 days, the stock has witnessed its 2021 earnings estimate move north 1.6%.

It retained investors' favorable sentiments by maintaining its beat streak in all the last four quarters, the average being 8.2%.

The company’s operating performance has been encouraging over the past many years, attributable to its diverse product suite, a wide geographic footprint and strong client retention. Its revenues have been increasing consistently since 2010 (except in 2015). In the first nine months of this year, its revenues of $12.8 billion were up 3% (1% on an underlying basis), backed by a strong Risk and Insurances Services Segment. We expect the stock to bounce back on product launches, buyouts and enhanced digital capabilities, etc.

Acquisitions form one of the main growth strategies at this leading insurance brokerage company. Just like its peers, the company made numerous purchases within its different operating units that enabled it to tap new geographies, expand within the existing ones, foray into new businesses, develop new segments and specialize within its current businesses. Its Marsh & McLennan Agency LLC (MMA) unit recently acquired the independent agency INSPRO in Nebraska. It also bought Heritage Insurance Service, Inc., a market-leading independent agency in Louisville, KY.

Marsh & McLennan has maintained a strong solvency position including consistent cash flow generation for the past many years. Its disciplined capital management through share buyback and dividend payments cemented investors’ confidence in the stock. In July 2020, the board of directors hiked its quarterly cash dividend by 2.2%, reflecting the 11th consecutive year of dividend increase at Marsh & McLennan. The company’s current dividend yield of 1.6% is higher than the industry average of 1.3%.

Further, Marsh & McLennan’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s 31.2% ROE betters its industry average of 27.6%, reflecting its efficiency in utilizing its shareholders’ funds.

However, the company’s operating expenses escalated over the last several years due to higher compensation and benefits. A persistent elevation of expenses might weigh on its margins.

For 2020, its earnings estimate stands at $4.91, indicating an upside of 5.4% from the year-ago reported figure.

Zacks Rank and Price Performance

Shares of Marsh & McLennan, which currently carries a Zacks Rank #3 (Hold), have gained 6.7% over the past six months compared with the industry’s growth of 9.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s peers, namely Arthur J. Gallagher & Co. (AJG - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Aon plc (AON - Free Report) have also rallied 24.8%, 12% and 8.3%, respectively, in the same time frame.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>