The insurance brokerage industry is well-poised for growth on the back of prudent underwriting, better pricing, constant mergers and acquisitions plus demand for insurance products and global expansion. All these contributed to the leading companies’ top-line growth. The companies undertook several fast-paced consolidations to combine skills and expand their presence.
Although the pandemic dented the overall industry’s results to some extent, we think that the same is bouncing back pretty well on the increasing adoption of technology and rising demand for its products. The players are constantly cross-selling products and controlling costs to add to their top-line growth. The surge in aging population is driving demand for retirement-benefit products while the swelling number of baby boomers and millennials is boosting demand for medical insurance, life insurance, accidental insurance and other forms of insurance. Technavio analysts forecast the global insurance brokerage market to rise $13.84 billion or see a CAGR of more than 4% during the 2020-2024 time frame, per their market research report. The industry is continuously evolving with the M&A activity that is reshaping business profiles and reducing the number of its players, changing its traditionally-fragmented space in the process. Insurance brokers are consistently looking for ways to fight the evolving challenges and boost their company portfolios. Some of the most significant transactions in the industry include Marsh & McLennan Companies, Inc.’s ( MMC Quick Quote MMC - Free Report) 2019 purchase of Jardine Lloyd Thompson Group plc for a consideration of $5.6 billion, which helped expanding its capabilities. Further, Aon plc ( AON Quick Quote AON - Free Report) entered into an agreement with Willis Towers Watson Public Limited Company ( WLTW Quick Quote WLTW - Free Report) to merge in an all-stock deal, which is expected to serve clients better. The buyout will likely close in the first half of 2021. Other companies, such as Arthur J. Gallagher & Co. ( AJG Quick Quote AJG - Free Report) and Brown & Brown, Inc. ( BRO Quick Quote BRO - Free Report) also indulge in a host of activities at a steady pace to enhance their footprint. It is interesting to notice that the companies are embracing technological evolutions to combat threats from the new entrants. These players are gaining traction from cutting-edge technology and innovation including AI, robotics and blockchain to simplify and improve client experience, increase efficiencies, alter business models and bring about other disruptive changes in industries. The overall bullish scenario makes us believe that growth will be consistent in this industry, which should boost prospects of companies with strong business fundamentals. The Zacks Insurance - Brokerage industry has gained 4.1% in the past year, underperforming the S&P Index’s growth of 17.8%. Against this backdrop, let’s look at the two leading brokerage insurers Aon and Marsh & McLennan with the respective market capitalizations of $48.94 billion and $59.34 billion. Each stock has a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Let's analyze certain other parameters to find out which company is better positioned. Price Performance
Shares of Aon and Marsh & McLennan have gained 1.3% and 4.5% in the past year, respectively.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Aon’s bottom line managed to beat estimates in three of the trailing four quarters, missing the same in one, the average surprise being 1.1%. Notably, Marsh & McLennan’s earnings surpassed the mark in all the trailing four quarters, the average being 8.2%. It is clear that Marsh & McLennan has an edge over Aon here. Return on Equity
Return on equity is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Aon’s ROE of 65% compares favorably with Marsh & McLennan’s ROE of 31.2%. Valuation
Price-to-earnings value is one of the multiples used for valuing health insurers. Compared with the brokerage insurance industry’s forward 12-month P/E ratio of 20.7, Aon and Marsh & McLennan has a reading of 19.8 and 22.4, respectively. Aon has a better reading than that of Marsh & McLennan.
Both companies have higher debt-to-equity ratio than the industry average of 109.6X. However, Marsh & McLennan’s leverage ratio of 131.8X betters Centene’s ratio of 213.3X. Therefore, Marsh & McLennan is at an advantage over Aon on this front.
Here, Marsh & McLennan has a marginal edge over Aon in terms of yearly earnings growth. Bottom Line
Our comparative analysis shows that Marsh & McLennan is better-placed than Aon with respect to price performance, leverage ratio and earnings surprise. Meanwhile, Aon scores higher in terms of valuation and return on equity. As the scale is slightly tilted toward Marsh & McLennan, the stock discernibly makes a more promising investment proposition.
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