Marsh & McLennan Companies, Inc. (MMC - Free Report) is well-poised for growth on the back of its strategic initiatives that led to expansion of business and a strong capital position.
Its return on equity — a profitability measure — stands at 29.7%, above the industry's average of 25.8%. 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 4.77%. This reflects the company’s operational excellence.
The company’s operating efficiency, driven by its diverse product offerings, a wide geographic footprint and strong client retention is worth mentioning. This has also contributed to its growing top line. Moreover, revenues have been increasing consistently since 2010 (except in 2015, which saw a revenue dip of just 0.4%). This trend continued into 2018 and the first half of 2019, led by strong segmental growth, acquisitions and penetration into new areas, etc. A number of acquisitions made over the past many years, significant capital expenditures undertaken for growth, launch of new product and services, enhancements of digital capabilities and branching out into new businesses will further boost the company's growth.
Acquisitions form one of the core growth strategies at Marsh and McLennan. The company’s numerous purchases within its different operating units enabled it to enter new geographical regions, expand within the existing ones, foray into new businesses, develop new segments and specialize within its existing operations. In 2019 too, it closed the pending acquisition of JLT for $5.8 billion. Further, its Marsh and Mercer units have been constantly acquiring companies to enhance their abilities.
The company has maintained a solid balance sheet and financial flexibility, leading to cash flow generation over the past many years. Its disciplined capital management through share buyback and dividend payments also cemented investors’ confidence in the stock. In May 2019, its board of directors hiked its quarterly cash dividend by 10%, effective this August. Its dividend yield stands at 1.82%, higher than its industry's average of 1.43%. The company’s initiatives to enhance shareholder value should buoy investor’s optimism on the stock.
However, its net investment income remains under pressure. In 2016, investment income was less than $1 million compared with $38 million in 2015. For 2017, the same slightly improved to $15 million. Following the liquidation of Trident III (in 2015), the company now has a much smaller private equity portfolio. In 2018, the company incurred a net investment loss of $12 million against its net investment income of $15 million in 2017. In the first half of 2019, the metric plunged 54% year over year. This remains a concern for the company.
Its long-term growth rate stands at 12.10%, higher than its industry’s average of 10.8%, which should instill investor’s trust in the stock.
The Zacks Consensus Estimate for the company’s current-year earnings is pegged at $4.62, suggesting a rise of 6.2% on 12.8% higher revenues of $16.9 billion from the year-ago reported figures.
Shares of this Zacks Rank #3 (Hold) company have rallied 17.8% in the past year, underperforming its industry’s growth of 27.7%.
Stocks to Consider
Investors interested in the insurance industry might take a look at some better-ranked stocks like eHealth, Inc. (EHTH - Free Report) , Brown & Brown., Inc. (BRO - Free Report) and Radian Group (RDN - Free Report) .
eHealth offers private online health insurance exchange services in the United States and China. It came up with average three-quarter positive surprise of 167.2%. The stock sports a Zacks Rank #1 (Strong Buy).
Brown & Brown deals with insurance products and services. The company has a Zacks Rank #2 (Buy) and managed to deliver positive results in the trailing four quarters, the average being 9.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Radian Group engages in the mortgage and real estate services business in the United States. The company pulled off a positive surprise of 14.29% in the last reported quarter. It carries a Zacks Rank of 2.
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