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Why Should You Add Marsh & McLennan (MMC) to Your Portfolio?

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Marsh & McLennan Companies, Inc. (MMC - Free Report) has been favored by investors for quite some time now owing to its inorganic growth strategies and a growing top line.

Over the past 30 days, the stock has witnessed its 2021 earnings estimate move 7.8% north.

It retained investors' bullish sentiments by maintaining its beat streak in all the last four quarters, the average being 13.88%. This, in turn, underlines its operational excellence.

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 27.2%, reflecting its efficiency in utilizing its shareholders’ funds.

The company recently reported second-quarter earnings of $1.75, surpassing the Zacks Consensus of Estimate by 23.2%. This upside is owing to a solid contribution from its Risk and Insurance Services as well as Consulting segments. The bottom line also improved 32.6% from the year-ago quarter’s level.

Now let us discuss what makes this leading health insurer an investor favorite.

The company has been substantially gaining from its strategic acquisitions and alliances over time. It made numerous purchases within its different operating units that have so far enabled it to tap new geographical regions, expand within the existing territories, foray into new businesses, develop new segments and specialize within its prevalent operations. In 2019, it purchased JLT to enhance its portfolio.

Last year was a record period for MMA with regard to acquired revenues since its establishment in 2009. As a case in point, the company completed eight transactions during the same time frame, fetching in combined revenues of around $235 million. On Apr 1, 2021, the company bought PayneWest, one of the largest independent agencies in the United States.

Marsh & McLennan’s operating performance has been favorable for the past many years, driven by its diverse product offerings, a wide geographic footprint and strong client retention. Its revenues have been increasing consistently since 2010 (except in 2015). The trend continued in the first half of 2021 as well with revenues improving 9% on an underlying basis from the prior-year comparable period’s level, courtesy of strong Risk & Insurances Services and Consulting segments.

We expect revenues to continue rising on the back of acquisitions, significant capital expenditures undertaken for growth, launch of products and services, enhancements of digital capabilities and branching out into new businesses.

The insurance broker’s Risk and Insurance Services segment, which operates through Marsh and Guy Carpenter, has been delivering solid results for the last few quarters. In 2020, revenues from the same rose 8% year over year, accounting for approximately 60% of the company's total last-year revenues. In the first half of 2021, the segmental metric amounted to $6.4 billion, up 10% from the year-ago comparable period’s reading on an underlying basis.

The company’s investment income is also bouncing back as the economy is reviving. In the first half of 2021, of the same came in at $30 million, aided by the private equity portfolio.

The insurance brokerage provider has maintained consistent cash flow generation for several years. Its disciplined capital management through share buybacks and dividend payments cemented investors’ confidence in the stock.

In July 2021, the board of directors hiked the quarterly cash dividend by 15%, reflecting the 12th consecutive year of dividend increase at Marsh & McLennan. The company has plans to deploy more than $3.5 billion of capital in 2021 across dividends, debt reduction, acquisitions and share repurchases.

For the current year, this presently Zacks Rank #2 (Buy) player’s earnings estimate suggests an upside of 22.1% from the year-ago reported figure. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Year to date, this leading insurance broker has gained 30.7%, outperforming its industry's growth of 7.2%

Zacks Investment Research
Image Source: Zacks Investment Research


Other companies in the same space, such as Aon plc (AON - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Willis Towers Watson Public Limited Company (WLTW - Free Report) , have also rallied 31%, 17.3% and 5.6% in the same time frame. Each company holds a Zacks Rank of 2 at present,