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Here's Why You Should Hold Onto Willis Towers Watson Stock

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Willis Towers Watson Public Limited Company (WLTW - Free Report) remains well poised for growth, banking on incremental revenue rise, cost synergies, investing in new growth avenues and a solid capital position. This Zacks Rank #3 (Hold) insurance broker bears immense potential owing to a few good growth drivers.

Growth Projections: The Zacks Consensus Estimate for earnings per share is pegged at $9.80 for 2018 on $8.38 billion revenues. The consensus mark reflects a year-over-year increase of 16.9% for the bottom line and a 3.3% rise for the top line.

The expected long-term earnings growth rate for the stock is 10.2%.

Positive Earnings Surprise History: Willis Towers Watson has surpassed the Zacks Consensus Estimate in two of the last four quarters with an average beat of 6.32%.

The company is expected to report fourth-quarter results in the first week of February.  Our proven model shows that Willis Towers Watson is likely to beat estimates this quarter based on the ideal combination of two strong ingredients: a Zacks Rank of 3, which increases the predictive power of ESP and an Earnings ESP of +0.63%, which makes us confident of a likely positive earnings surprise.

Price Performance: Shares of Willis Towers Watson have rallied 20% in a year, outperforming the industry’s 18% increase.

Underpriced: Looking at the company’s price-to-book ratio — the best multiple for valuing insurers because of large variations in their earnings results from one quarter to the next — shares are underpriced at the current level. The company has a trailing 12-month P/B ratio of 1.99, significantly higher than the industry average of 4.35.  

Growth Drivers in Place

Organic growth in commissions and fees, which form the major component of Willis Towers’ revenues, continues to post positive numbers on the back of organic growth across segments and a rich contribution from acquisitions. The company projects constant currency revenue growth to hover around 3% in 2017.

The momentum in exchange business remains strong. Willis Towers Watson noted that in active exchanges, it has six large clients with about 0.15 million total lives, already committed to the 2018 enrollment period and one large client, committed to the 2019 enrollment period.

Its inorganic story remains impressive as strategic acquisitions diversify the product portfolio, generates synergies and expand international presence. The company has been progressing well and also anticipates achieving $125 million, in relation to cost synergies, by 2018.

Willis Towers Watson expects adjusted earnings per share between $8.36 and $8.51 in 2017. Constant currency revenue growth is estimated at 2-3% range while EBITDA margin in the band of 23-24%.

A strong financial position aids the company to return value to shareholders through dividend hikes as well as pursue growth initiatives. While the company has increased its dividend at a five-year CAGR (2011-2016) of 15.3%, it has $671 million remaining under its share repurchase authorization. The company targets dividend payout ratio of about 25%.

Stocks to Consider

Some better-ranked stocks from the finance sector are Brown & Brown, Inc. (BRO - Free Report) , Marsh & McLennan Companies, Inc. (MMC - Free Report) and Cigna Corp. (CI - Free Report) .

Brown & Brown markets and sells insurance products and services primarily in the United States as well as in England, Bermuda and the Cayman Islands. The company came up with an average four-quarter beat of 4.31%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Marsh & McLennan provides advice and solutions in the areas of risk, strategy and people worldwide. The company delivered an average four-quarter beat of 4.08%. The stock boasts a Zacks Rank of 1.

Cigna Corp provides insurance, investment management and other financial products and services in the United States and internationally. The company pulled off an average four-quarter positive surprise of 0.16%. The stock carries a Zacks Rank #2 (Buy).

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