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Here's Why You Should Hold Marsh & McLennan (MMC) Stock Now

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Marsh & McLennan Companies, Inc. (MMC - Free Report) is well-poised for growth on the back of continued demand for its products, new business growth, frequent acquisitions and a commendable financial position.

Zacks Rank & Price Rally

Marsh & McLennan currently carries a Zacks Rank #3 (Hold).

The stock has gained 17.4% in the past year compared with the industry’s 10.3% growth.

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Optimistic Growth Projections

The Zacks Consensus Estimate for Marsh & McLennan’s 2024 earnings is pegged at $8.68 per share, indicating an 8.6% increase from the 2023 reported figure. The same for revenues is $24.3 billion, implying 7% growth from the prior-year number.

The consensus estimate for 2025 earnings is pegged at $9.38 per share, suggesting 8% growth from the 2024 estimate. The same for revenues is $25.7 billion, which indicates a rise of 5.6% from the prior-year estimate.

MMC boasts an impressive surprise history. Its earnings outpaced estimates in each of the trailing four quarters, the average surprise being 6.5%.

Solid Return on Equity

The return on equity for Marsh & McLennan is currently 34.1%, which is higher than the industry’s average of 31.1%. The figure substantiates the company’s efficiency in utilizing shareholders’ funds.

Key Drivers

Marsh & McLennan’s top line should continue to benefit from solid contributions by the Risk and Insurance Services and, Consulting segments. Its revenues have consistently grown since 2010, except for in 2015. Management expects to generate mid-single digits or higher underlying revenue growth in 2024.

New business growth, higher renewal rates, and improved insurance and reinsurance rates coupled with a growing global economy drive the Risk and Insurance Services segment, which accounted for around 66% of MMC’s overall top line in the first quarter of 2024. The unit completed two acquisitions in the first quarter of two leading agencies in Louisiana.

The Consulting unit contributed roughly 34% of consolidated revenues in the first quarter. The segment is aided by the sustained demand for health, wealth and career solutions and consulting services. Moreover, the segment's performance is also driven by a growing client base, collaborations and partnerships and enhancing the delivery of value-added services. Expansion initiatives and rising demand for its services poise the segment well for growth. The segment completed four buyouts in the first quarter.

Marsh & McLennan follows an active inorganic growth strategy throughout the year. MMC makes frequent acquisitions within its different operating units that enable it to delve deep into new regions, solidify its presence within the existing ones, venture into new businesses and specialize within its existing businesses. It expended $347 million on acquisitions in the first quarter of 2024.

Some of the recent buyouts made by its operating units include the outsourced chief investment officer (OCIO) business of Vanguard, a leading investment management firm, and two middle-market agencies of Louisiana, Querbes & Nelson (Q&N) and Louisiana Companies. Vanguard’s OCIO business was purchased by Mercer, a unit within the Consulting segment. Q&N and Louisiana Companies were acquired by a division of MMC’s Marsh business, Marsh McLennan Agency. It also acquired Perkins Insurance Agencies and Fisher Brown Bottrell Insurance in June 2024. Oliver Wyman and Mercer completed the acquisitions of Veritas Total Solutions and Cardano, respectively. To streamline operations, the company sold its Mercer UK pension administration and U.S. health and benefits administration businesses.

A solid financial position is a dire need to maintain an active acquisition spree and other growth-related initiatives. Marsh & McLennan boasts solid cash reserves and robust cash-generating abilities. Its adjusted free cash flow rose 14% year over year in the first quarter.

An impressive financial stand also enables MMC to return value to shareholders through share buybacks and dividend payments. MMC has been hiking dividends for 14 straight years. Its dividend yield of 1.3% remains higher than the industry average of 1.1%. It plans to deploy roughly $4.5 billion in capital in 2024 on dividends, buyouts and share buybacks.

However, MMC’s operating expenses rose 8.3% in the first quarter of 2024, mainly due to higher compensation and benefits expenses. Rising costs can affect its margins.

Stocks to Consider

Some better-ranked stocks in the broader Finance space are Ambac Financial Group, Inc. (AMBC - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Root, Inc. (ROOT - Free Report) . Each stock presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Ambac Financial’s current-year earnings is pegged at $1.45 per share, which witnessed one upward estimate revision in the past month against no movement in the opposite direction. It beat earnings estimates in all the past four quarters, with an average surprise of 893.5%.

The Zacks Consensus Estimate for Brown & Brown’s current-year earnings is pegged at $3.51 per share, which indicates 24.9% year-over-year growth. It has witnessed five upward estimate revisions against none in the opposite direction during the past month. BRO beat earnings estimates in each of the past four quarters, with an average surprise of 11.9%.

The consensus mark for ROOT’s current-year earnings indicates a 35.6% year-over-year improvement. It beat earnings estimates in all the past four quarters, with an average surprise of 34.1%. Furthermore, the consensus estimate for Root’s 2024 revenues suggests 125.3% year-over-year growth.

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