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WTW Outperforms Industry, Trades at a Discount: How to Play the Stock
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Key Takeaways
WTW targets margin improvement, cash flow strength and sustainable revenue growth across core areas.
Strong performance in Health, Wealth & Career and Risk & Broking continues to lift WTW's top line.
Strategic acquisitions and a solid balance sheet support WTW's capital deployment and expansion.
Shares of Willis Towers Watson Public Limited Company (WTW - Free Report) have gained 4.7% in the past year, outperforming its industry’s decline of 24.6%.
The insurer has a market capitalization of $32.01 billion. The average volume of shares traded in the last three months was 0.6 million.
Image Source: Zacks Investment Research
Willis Towers’ bottom line surpassed earnings estimates in three of the last four quarters and missed in one, the average being 2.39%.
WTW Shares are Affordable
WTW shares are trading at a discount compared with the Zacks Brokerage Insurance industry. Its forward price-to-earnings multiple of 16.96X is lower than the industry average of 17.64X, the Finance sector’s 17.22X and the Zacks S&P 500 Composite’s 23.51X.
Shares of other insurers like Aon plc. (AON - Free Report) and Arthur J. Gallagher & Co. (AJG - Free Report) are trading at a multiple higher than the industry average, while Brown & Brown, Inc. (BRO - Free Report) is trading at a discount.
Image Source: Zacks Investment Research
WTW Trading Above 50-Day and 200-Day Moving Averages
Shares of WTW closed at $328.19 on Thursday, and the stock is trading above the 50-day and 200-day simple moving averages (SMA) of $324.65 and $321.14, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Image Source: Zacks Investment Research
WTW’s Growth Projection Encourages
The Zacks Consensus Estimate for Willis Towers’ 2026 earnings per share and revenues indicates an increase of 13.9% and 5.9%, respectively, from the corresponding 2025 estimates.
Average Target Price for WTW Suggests Upside
Based on short-term price targets offered by 20 analysts, the Zacks average price target is $369.30 per share. The average suggests a potential 12.79% upside from the last closing price.
Factors Impacting WTW
Willis Towers’ growth strategy encompasses a focus on improving operating margins, increasing free cash flow conversion and driving sustainable revenue growth. Focus on core opportunities with the highest growth and return, which include gaining market share in Risk and Broking and Individual Marketplace, should spur long-term growth and return more value to shareholders.
Well-performing Health, Wealth & Career and Risk & Broking segments, driven by solid customer retention levels, growing new business and geographic diversification, continue to fuel the top line. Most of the company's operating regions experienced revenue growth for 15 straight quarters.
Strategic acquisitions have expanded its geographical footprint in the last few years in countries like Italy, Canada, the United Kingdom and France, as well as ramped up its product portfolio.
Willis Towers has been improving its liquidity while maintaining a solid balance sheet. A solid balance sheet and steady cash flow are expected to help the company engage in capital deployment for buybacks, dividend payouts, debt repayments, acquisitions and investments that drive and support growth.
Distribution of Wealth
Banking on its capital position, WTW distributes wealth to shareholders in the form of dividend hikes and share repurchases. Its dividend has witnessed a six-year CAGR (2019-2025) of 5.7%. The insurer continues to expect to allocate approximately $1.5 billion to share repurchases in 2025.
Headwinds
Despite the upside potential, Willis Towers’ expenses have been rising over the last several quarters. Higher salaries and benefits, other operating expenses, transaction and transformation, and increased consulting and compensation costs related to the Transformation program result in the contraction of margins. Willis Towers estimates to deliver an expansion in margin over the long term.
WTW’s trailing 12-month ROE of 21.4% is weak when compared with the industry average of 24.8%, reflecting its inefficiency in using shareholders' funds.
Conclusion
Willis Towers boasts a strong product portfolio and has a solid track record of strategic acquisitions, as well as favorable growth estimates. The Health, Wealth & Career and Risk & Broking segments should continue to witness significant growth from increases in most lines of business. A robust capital position over the years reflects its financial flexibility.
Image: Bigstock
WTW Outperforms Industry, Trades at a Discount: How to Play the Stock
Key Takeaways
Shares of Willis Towers Watson Public Limited Company (WTW - Free Report) have gained 4.7% in the past year, outperforming its industry’s decline of 24.6%.
The insurer has a market capitalization of $32.01 billion. The average volume of shares traded in the last three months was 0.6 million.
Image Source: Zacks Investment Research
Willis Towers’ bottom line surpassed earnings estimates in three of the last four quarters and missed in one, the average being 2.39%.
WTW Shares are Affordable
WTW shares are trading at a discount compared with the Zacks Brokerage Insurance industry. Its forward price-to-earnings multiple of 16.96X is lower than the industry average of 17.64X, the Finance sector’s 17.22X and the Zacks S&P 500 Composite’s 23.51X.
Shares of other insurers like Aon plc. (AON - Free Report) and Arthur J. Gallagher & Co. (AJG - Free Report) are trading at a multiple higher than the industry average, while Brown & Brown, Inc. (BRO - Free Report) is trading at a discount.
Image Source: Zacks Investment Research
WTW Trading Above 50-Day and 200-Day Moving Averages
Shares of WTW closed at $328.19 on Thursday, and the stock is trading above the 50-day and 200-day simple moving averages (SMA) of $324.65 and $321.14, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.
Image Source: Zacks Investment Research
WTW’s Growth Projection Encourages
The Zacks Consensus Estimate for Willis Towers’ 2026 earnings per share and revenues indicates an increase of 13.9% and 5.9%, respectively, from the corresponding 2025 estimates.
Average Target Price for WTW Suggests Upside
Based on short-term price targets offered by 20 analysts, the Zacks average price target is $369.30 per share. The average suggests a potential 12.79% upside from the last closing price.
Factors Impacting WTW
Willis Towers’ growth strategy encompasses a focus on improving operating margins, increasing free cash flow conversion and driving sustainable revenue growth. Focus on core opportunities with the highest growth and return, which include gaining market share in Risk and Broking and Individual Marketplace, should spur long-term growth and return more value to shareholders.
Well-performing Health, Wealth & Career and Risk & Broking segments, driven by solid customer retention levels, growing new business and geographic diversification, continue to fuel the top line. Most of the company's operating regions experienced revenue growth for 15 straight quarters.
Strategic acquisitions have expanded its geographical footprint in the last few years in countries like Italy, Canada, the United Kingdom and France, as well as ramped up its product portfolio.
Willis Towers has been improving its liquidity while maintaining a solid balance sheet. A solid balance sheet and steady cash flow are expected to help the company engage in capital deployment for buybacks, dividend payouts, debt repayments, acquisitions and investments that drive and support growth.
Distribution of Wealth
Banking on its capital position, WTW distributes wealth to shareholders in the form of dividend hikes and share repurchases. Its dividend has witnessed a six-year CAGR (2019-2025) of 5.7%. The insurer continues to expect to allocate approximately $1.5 billion to share repurchases in 2025.
Headwinds
Despite the upside potential, Willis Towers’ expenses have been rising over the last several quarters. Higher salaries and benefits, other operating expenses, transaction and transformation, and increased consulting and compensation costs related to the Transformation program result in the contraction of margins. Willis Towers estimates to deliver an expansion in margin over the long term.
WTW’s trailing 12-month ROE of 21.4% is weak when compared with the industry average of 24.8%, reflecting its inefficiency in using shareholders' funds.
Conclusion
Willis Towers boasts a strong product portfolio and has a solid track record of strategic acquisitions, as well as favorable growth estimates. The Health, Wealth & Career and Risk & Broking segments should continue to witness significant growth from increases in most lines of business. A robust capital position over the years reflects its financial flexibility.
Given the escalating expenses and poor return on equity, it is better to stay cautious about this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.