Arthur J. Gallagher’s ( AJG Quick Quote AJG - Free Report) shares have gained 22% year to date, outperforming the industry’s increase of 13.8%. The Finance sector increased 6.9% and the Zacks S&P 500 composite has gained 17.1% in the same period. With a market capitalization of $49.6 billion, the average volume of shares traded in the last three months was 0.8 million. Solid performance of the Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment continue to drive AJG’s performance. Earnings of this Zacks Rank #3 (Hold) insurance broker increased 19.9% over the last five years, better than the industry average of 12.6%. The largest property/casualty third-party claims administrator has a stellar record of beating estimates for the last 20 quarters. Image Source: Zacks Investment Research Can It Retain the Momentum?
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2023 earnings is pegged at $8.74, indicating an increase of 12.9% on 17.2% higher revenues of $9.9 billion. The consensus estimate for 2024 earnings is pegged at $9.90, indicating an increase of 13.3% on 10.4% higher revenues of $10.9 billion.
The long-term earnings growth rate is currently pegged at 12.2%, better than the industry average of 10.6%. We estimate the bottom line to increase at a three-year (2022-2025) CAGR of 12.3%. Banking on a sturdy organic outlook, margin expansion opportunities and an impressive M&A pipeline, AJG expects to deliver a solid performance in 2023. A sustained solid operational performance at its Brokerage and Risk Management segments should continue to drive its top line. AJG estimates 2023 organic growth around 13% in 2023. We estimate the top line to increase at a three-year (2022-2025) CAGR of 11.8%. Arthur J. Gallagher expects organic growth in the Brokerage segment at the higher end of the 8% to 9% range. While we project revenues at Brokerage to increase at a three-year (2022-2025) CAGR of 12%, Risk Management revenues are expected to be up 11.6% over the same time frame. AJG has an impressive inorganic growth story. It closed 25 buyouts with estimated annualized revenues acquired of $418.1 million and 10 acquisitions so far in the third quarter. The insurance broker has quite a strong pipeline with about $350 million of revenues, associated with almost 40 term sheets, either agreed upon or being prepared. The company estimates M&A capacity of more than $3 billion through 2023 and another $3 billion in 2024. Management estimates revenue growth rates to generally range from 5% to 20% for 2023 acquisitions. AJG estimates a consolidated adjusted EBITDAC margin of 20% in 2023. The insurance broker also estimates adjusted EBITDAC margin at Brokerage to expand between 60 basis points (bps) and 80 bps in 2023 and adjusted EBITDAC to increase more than 19% at Risk Management. We expect a 17.4% rise in adjusted EBITDAC in 2023. The adjusted net margin is projected to expand 30 bps. In its efforts to continually reward shareholders, AJG engages in effective capital deployment. It increased dividends at a three-year CAGR (2020-2023) of 5.1%, with dividends currently yielding 1.1%. AJG also has $1.5 billion share buyback authorization remaining. Stocks to Consider
Some better-ranked stocks from the insurance industry are
Erie Indemnity ( ERIE Quick Quote ERIE - Free Report) , Brown and Brown ( BRO Quick Quote BRO - Free Report) and Marsh & McLennan Companies ( MMC Quick Quote MMC - Free Report) . The Zacks Consensus Estimate for Erie Indemnity’s 2023 and 2024 earnings indicates a respective 32.9% and 16.7% year-over-year increase. It has Growth Score of B. The consensus estimate has risen 5.4% for 2023 and 8.3% for 2024 in the past 60 days. ERIE delivered a four-quarter average earnings surprise of 2.05%. Shares have risen 15.4% year to date. It sports a Zacks Rank #1 (Strong Buy) at present. You can see . the complete list of today’s Zacks #1 Rank stocks here The Zacks Consensus Estimate for Brown and Brown’s 2023 and 2024 earnings indicates a respective 18% and 10% increase year over year. The consensus estimate has risen 7.2% for 2023 and 6.5% for 2024 in the past 60 days. BRO delivered a four-quarter average earnings surprise of 3.98%. It carries a Zacks Rank #2 (Buy). Shares of BRO have risen 28.8% year to date. Marsh & McLennan delivered a four-quarter average earnings surprise of 3.44%. The Zacks Consensus Estimate for 2023 and 2024 earnings indicates a respective 12.6% and 9.4% year-over-year increase. The consensus estimate has risen 0.1% for 2023 and 1.3% for 2024 in the past 60 days. The expected long-term earnings growth rate is pegged at 10.5%. MMC carries a Zacks Rank #2. Its shares have risen 19.1% year to date.