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Here's Why Brown & Brown (BRO) Stock is a Solid Pick Now

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Brown & Brown, Inc. (BRO - Free Report) has been in investors’ good books on the back of higher customer retention, acquisitions and improving leverage.

Over the past 60 days, the company’s 2021 and 2022 earnings estimates have moved 4.6% and 6.6% north, respectively, reflecting investors’ optimism surrounding the stock.

Brown & Brown has a decent earnings surprise history. It beat estimates in each of the last four quarters, with the average being 16.6%.

The brokerage insurer remains well poised for growth on the back of solid performance across its segments. Riding on new businesses, better customer retention and premium rate increases across the majority of business lines, as well as acquisition activity, Retail and Wholesale Brokerage segments contribute modestly to the company’s overall revenues.

Revenues of Brown & Brown have got a boost as a result of focus on net new business growth and acquisitions. Despite the uncertainties last year, the company completed 25 acquisitions, with estimated annual revenues of $197 million. Such activities aided Brown & Brown in expanding the existing capabilities and reinforced global presence. From 1993 through the fourth quarter of 2020, it acquired 561 insurance intermediary operations.

The company boasts a solid balance sheet, with high liquidity and improving leverage. Its debt to capital of 35.8% was better than the industry average of 52.3%. A lesser debt burden relative to the industry is encouraging. In addition, it ended 2020 with a cash and cash equivalent position of $817 million, as well as $800 million of accessible capital on its revolver. It delivered cash flow from operations of $721.6 million, which indicates a strong conversion rate of 27.6% as a percentage of revenues.

Furthermore, its times interest earned — a measure to identify the company’s ability to service debt — of 11.6 is better than the industry average of 6.8. This implies that its earnings are sufficient to cover interest obligations.

Brown & Brown remains committed to enhance shareholder value. The company’s current dividend yield stands at 0.8%. It has $406.2 million remaining under the share repurchase authorization.

Shares of this Zacks Rank #2 (Buy) company have gained 6.2% in a year’s time, underperforming the industry’s 14.7% rally.



Nevertheless, the Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $1.80 and $1.97, indicating year-over-year increase of nearly 7.7% and 7.5%, respectively.

Other Stocks to Consider

Other top-ranked stocks in the insurance industry include Alleghany , Cincinnati Financial Corporation (CINF - Free Report) and First American Financial Corporation (FAF - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alleghany’s bottom line surpassed estimates in two of the last four quarters, while missed the same on the other two occasions, with the average surprise being 34.1%.

Cincinnati Financial surpassed earnings estimates in two of the last four quarters, with the average surprise being 4.1%.

First American Financial’s bottom line surpassed estimates in three of the
last four quarters and missed once, with the average surprise being 15.9%.

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