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Analyst Blog

On Feb 26, 2013, we upgraded Willis Group Holdings plc to Neutral from Underperform due to its solid performance in the fourth quarter. Moreover, management is reviewing the organizational design to drive cost savings for this Zacks Rank #3 (Hold) insurance broker.

Why the Upgrade?

Willis Group posted adjusted net income from continuing operations of 45 cents per share, surpassing the Zacks Consensus Estimate by a penny.

The company generated organic growth in commissions and fees of 7.5% in the fourth quarter, the highest growth rate since the third quarter of 2006, with contribution from all the segments.

Further, Willis Group, to enhance its profitability, is undertaking a cost savings initiative. Management is reviewing the organizational design and expects to reduce headcount. It expects to realize cost savings of $20 million to $25 million in 2013 and annualized cost savings of approximately $25 million to $30 million.

The review will be completed in the first quarter of 2013. As a result, Willis Group expects to incur a pre-tax charge of about $35 million to $45 million in the first quarter of 2013.

Moreover, Willis Group has consistently tried to enhance shareholder value via dividend increase as well as share buybacks. It already exhausted its $100 million buyback program in 2012 and recently hiked dividend by 3.7%. The company’s dividend yield is 3.05%, ahead of the industry yield of 1.64% and Marsh & McLennan Companies Inc.’s (MMC - Analyst Report) yield of 2.55%.  

The Zacks Consensus Estimate for 2013 is currently pegged at $2.66 per share, up 3% year over year.

Other Stocks to Consider

Among other insurance brokers, Brown & Brown Inc. (BRO - Analyst Report) , and Arthur J Gallagher & Co. (AJG - Analyst Report) carry a Zacks Rank #2 (Buy), and appear impressive.