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Brown & Brown (BRO) Rides on Organic Growth, Expenses Rise

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Brown & Brown, Inc. (BRO - Free Report) remains well poised for growth driven by organic and inorganic efforts, robust capital position and efficient capital deployment.

The company boasts an impressive growth record backed by organic and inorganic efforts.

Organic revenue growth at the company’s Retail, National Programs and Wholesale Brokerage segments were impressive in the first quarter of 2020. Growth was fueled by improved retention, new business, rate improvement, strong performance of several programs and solid performance of both Brokerage and Binding Authority businesses.

Brown & Brown has acquired 500 insurance intermediary operations in more than two decades. Strategic mergers and acquisitions have enabled it to expand its operations. It remains focused on making investments to drive organic growth and margin expansion. Solid capital position has enabled the company to boost its capabilities with acquisitions and widen its geographical presence.

Banking on strong capital and liquidity position, the company deploys capital effectively via share repurchases and dividend hikes to enhance shareholder value. In October 2019, the company raised dividend by 6.25%, which marked the 26th yearly dividend hike. However, the company’s dividend yield of 0.9% compares unfavorably with the industry’s yield of 1.5%.

The company also has a decent history of beating estimates in each of the last four quarters with the average beat being 7.22%.

The brokerage insurer’s interest coverage ratio of 10.1 compares favorably with the industry average of 6.1, which indicates its ability to adequately cover interest obligations.

The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $1.43 and $1.50, respectively indicating increase of nearly 2.1% and 4.6% from the year-ago reported figure. The expected long-term earnings growth rate is 10%, better than the industry average of 8.5%.

Shares of this Zacks Rank #3 (Hold) stock have gained 18.6% in a year’s time, outperforming the industry’s increase of 5.4%. The company’s efforts to ramp up growth, and its solid capital position should continue to drive shares higher.

However, escalating expenses due to higher employee compensation and benefits and amortization affected the bottom line and margins of the company. Lower return on equity continues to pose financial risk.

Stocks to Consider

Some better-ranked stocks from the same space are eHealth Inc (EHTH - Free Report) , EverQuote Inc (EVER - Free Report) and James River Group Holdings Ltd (JRVR - Free Report) . While eHealth sports a Zacks Rank #1 (Strong Buy), EverQuote and James River carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

eHealth surpassed estimates in each of the last four quarters, with the average positive surprise being 78.40%.

EverQuote surpassed estimates in each of the last four quarters, with the average positive surprise being 86.67%.

James River Group surpassed estimates in three of the last four quarters, with the average positive surprise being 7.31%.

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