It has been about a month since the last earnings report for Willis Towers Watson (
WLTW Quick Quote WLTW - Free Report) . Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Willis Towers Watson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Willis Towers Q2 Earnings & Revenues Top, Dividend Up Willis Towers Watson reported second-quarter 2021 adjusted earnings of $2.66 per share, which outpaced the Zacks Consensus Estimate of $1.98. Moreover, the bottom line improved 48% year over year. Second-quarter results reflect broad-based revenue growth, continued margin expansion, and significant earnings per share growth. Operational Update
Revenues improved 8% year over year to $2.3 billion in the second quarter. Revenues grew 8% on an organic basis and 4% on a constant currency basis. Further, the top line surpassed the Zacks Consensus Estimate of $2.2 billion.
Total costs of providing services increased 3.9% year over year to $2 billion due to rise in salaries and benefits, other operating expense, depreciation and transaction and integration expenses. Adjusted operating income amounted to $409 million, which improved 38.2% year over year. Margin came in at 17.9%, up 390 basis points (bps) year over year. Adjusted EBITDA climbed 26.3% year over year to $557 million in the second quarter. Adjusted EBITDA margin was 24.4%, up 350 bps year over year. Quarterly Segment Update Human Capital & Benefits: Total revenues of $836 million improved 9% year over year (4% increase constant currency and 5% organic increase). On an organic basis, Technology and Administrative Solutions, Health and Benefits, Retirement and Talent and Rewards, all delivered revenue growth. Operating margin came in at 23%, up 210 bps year over year. Corporate Risk & Broking: Total revenues of $788 million rose 12% year over year (up 8% in both constant currency and organic basis). On an organic basis, North America, International, Western Europe and Great Britain all generated revenue growth with new business generation and strong renewals across several insurance lines. Operating margin came in at 22.9%, up 370 bps year over year. Investment, Risk & Reinsurance: Total revenues of $400 million declined 3% year over year (down 7% constant currency but up 15% organic). On an organic basis, most lines of business contributed to the growth. The segment’s operating margin came in at 33.3%, up 460 bps year over year. Benefits Delivery & Administration: Total revenues of $242 million climbed 16% year over year (up 16% constant currency and up 14% organic). The increase was driven by Individual Marketplace, primarily by TRANZACT, which generated revenues of $116 million in the second quarter with strong growth in Medicare Advantage sales. Operating margin was negative 4.3% compared with negative 4.2% reported in the prior-year quarter. Financial Update
As of Jun 30, 2021, the company’s cash and cash equivalents totaled $2.2 billion, which improved 6.1% from 2020-end level.
Long-term debt declined 14.3% from 2020-end to nearly $4 billion in the quarter under review. As of Jun 30, 2021, shareholders’ equity of $11.7 billion rose 7.9% from the level as on Dec 31, 2020. Cash flow from operating activities in the first half decreased 47% year over year to $366 million. Adjusted free cash flow increased 37% year over year to $721 million. Capital Deployment
The board of directors approved a 13% increase in its quarterly dividend to 80 cents per share. The dividend will be paid out on or around Oct 15, 2021 to shareholders of record on Sep 30, 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Willis Towers Watson has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Willis Towers Watson has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.