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Willis Towers Poised for Growth Despite Rising Expenses

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On Sep 23, 2016, we issued an updated research report on Willis Towers Watson plc (WLTW - Free Report) .

Willis Towers continues to gain from organic growth in commissions and fees, solid customer retention levels and expanding business. The Exchange Solutions segment also continues to display strength with about 0.07 million eligible lives for implementations this year. Moreover, the segment has already bagged 10 new projects. Willis Towers expects to enroll over 0.3 million retirees and active employees into exchanges, with year-over-year enrollment growth between 80% and 100% in the active space.

Willis Towers has undertaken strategic deals to expand its geographical footprint worldwide over the last few years. Post the merger of Willis Group and Towers Watson, Willis Towers estimates cost synergies between $100 and $125 million and tax savings of about $75 million annually by 2018.

The company’s Operational Improvement Program positions it to deliver adjusted EBITDA margin of 25% by 2018 and annual cost savings of $325 million by the end of 2017.

The Zacks Rank #3 (Hold) insurance broker’s operational strength has supported it to effectively lower its debt levels as well as engage in shareholder-friendly moves. These initiatives have not only helped it to retain investor confidence but also attract potential investors to the stock.

Nonetheless, escalating expenses remain a concern. While Willis Towers expects $150–$175 million in merger and integration-related costs for 2016, restructuring costs associated with Operational Improvement Program is estimated about $440 million in 2014–2017.

In the absence on any near-term catalysts fueling growth, the Zacks Consensus Estimate has been revised downward over the last 60 days.

Stocks to Consider

Some better-ranked insurers are National Interstate Corporation , Erie Indemnity Company (ERIE - Free Report) and Cincinnati Financial Corp (CINF - Free Report) . While National Interstate and Erie Indemnity sport a Zacks Rank #1 (Strong Buy), Cincinnati Financial carries Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Erie Indemnity, a provider of sales, underwriting, and policy issuance services for the policyholders on behalf of the Erie Insurance Exchange, has witnessed upward revision in the Zacks Consensus Estimate for 2016 but the same moved south for 2017 over the last 60 days.

National Interstate, a specialty property and casualty insurance, has witnessed upward revision in the Zacks Consensus Estimate over the last 60 days for both 2016 and 2017.

Cincinnati Financial, a property casualty insurer, has witnessed upward revision in the Zacks Consensus Estimate over the last 60 days for both 2016 and 2017.

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