Marsh & McLennan Companies, Inc. (MMC - Free Report) remained well-poised for growth, given its numerous mergers and acquisitions that have expanded the scope of its business, and a strong balance sheet.
Its return on equity — a profitability measure — is 28.7%, better than the industry average of 24.7%. This reflects the company’s efficiency in utilizing its shareholders’ funds.
Marsh & McLennan retained investors' favorable sentiments by maintaining its trend of surpassing estimates in three of the last four reported quarters, the average positive surprise being 4.95%. This definitely reflects the company’s operational excellence.
The company has been witnessing robust revenues on the back of diversified product offerings, a wide geographic footprint and strong client retention. Its revenue stream has been consistently strong since 2010 (except in 2015, which saw a revenue slip by just 0.4%). The top line improved 9.6% in the first nine months of 2018, led by solid segmental growths, acquisitions and penetration into new areas, etc.
Moreover, Marsh & McLennan has been aggressively acquiring companies to add capabilities to its portfolio. This M&A activity is one of the company’s core growth strategies. Last month, its Mercer unit completed the buyout of Summit Strategies Group to offer better client services. The company also completed an asset purchase in Scotland, contributing to its revenue base. Of late, it acquired Houston-based Wortham Insurance, Eustis Insurance & Benefits, a leading independent insurance agency in Louisiana and Pavilion Financial Corporation. Integration of Jardine Lloyd Thompson Group is also pending and with its culmination, the company’s subsidiary Marsh would launch a specialty business.
The company boasts a strong balance sheet and financial flexibility including consistent cash flow generation for the past many years. We expect the organization to boost its free cash flow generation by expense management and projected earnings growth. Its disciplined capital management through share buyback and dividend payments has cemented investors’ confidence in the stock. In May 2018, the company increased the quarterly cash dividend by 11%. It has a dividend yield of 1.8%, higher than the industry average of 1.15%. The company has been buying back shares over the last 25 consecutive quarters.
However, the company has been suffering low net investment income. In 2016, the same was less than $1 million compared with $38 million in 2015. For 2017, the same has slightly improved to $15 million. Following the liquidation of Trident III (in 2015), the company now has a much smaller private equity portfolio. As a result, contribution to the top line from investment income remained nominal in 2017. The company incurred a net investment loss of $24 million against its net investment income of $3 million in the year-ago quarter.
The Zacks Consensus Estimate for the company’s current-year earnings is pegged at $4.29, representing a year-over-year rise of 9.4% on revenues of $14.97 billion, up 6.7% year over year.
For 2019, the Zacks Consensus Estimate for earnings stands at $4.63 on $16.18 billion revenues, translating into a respective 7.8% and 8.1% year-over-year increase. Further, the company’s long-term (five years) estimated EPS growth rate of 13.40%, greater than the industry’s earnings growth rate of 11.60 %, promises rewards for investors.
Shares of this Zacks Rank #3 (Hold) company have dipped nearly 3% in the past year versus the industry’s growth of 1.2%.
Stocks to Consider
Investors interested in the same space might consider a few better-ranked stocks like Willis Towers Watson Public Limited Company (WLTW - Free Report) , eHealth, Inc. (EHTH - Free Report) and Aon plc (AON - Free Report) , each carrying a Zacks Rank #2 (Buy).
Willis Towers works as an advisory, broking and solutions company worldwide. The company managed to deliver positive results in the trailing four reported quarters, the average being 7.13%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
eHealth offers private online health insurance exchange services in the United States and China. It came up with average three-quarter earnings surprise of 7.29%.
Aon offers risk management services, insurance and reinsurance brokerage plus human resource consulting and outsourcing services. The stock pulled off average four-quarter beat of 4.57%.
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