Brown & Brown, Inc. (BRO - Free Report) is well-poised to gain from higher commission and fees, and improved liquidity position.
Shares of this Zacks Rank #3 (Hold) company have gained 17.5% in a year against the industry’s decline of 3.5%.
Notably, the Zacks Consensus Estimate for 2020 and 2021 earnings is pegged at $1.43 and $1.52 per share, indicating an improvement of 2.1% and 6.2%, respectively, from the year-ago reported figure.
Factors Driving Performance
The company continues to benefit on the back of improved commission and fees, which have witnessed a CAGR of 8.8% in the past five years (2014-2019). This, in turn, has been driving revenues for quite some time, which have also seena five year CAGR of 8.7%. This momentum continued in the first-quarter 2020 as well, where the company’s top line primarily benefited from a 12.8% rise in commission and fees, and 5.6% improvement in organic growth.
Moreover, Brown & Brown pursues numerous strategic initiatives to drive revenues. It makes constant investments for bolstering organic growth and expanding margins. Several buyouts and collaborations have enabled the company to expand existing capabilities and strengthen global presence. So far in 2020, the company has completed seven buyouts. However, it estimates negative organic growth in the second quarter due to the COVID-19 pandemic. Organic growth for 2020 is expected to be slightly positive or down low to mid-single-digits.
Furthermore, sound operational results have enabled the company to generaterobust cash flows. This, in turn, has induced adequate free cash flow that can be utilized for undertaking strategic initiatives and effective deployment measures. Notably, the company’s free cash flow has witnessed a CAGR of 20.1% in the past three years (2016-2019).
Additionally, the company’s improved liquidity position has led to a strong balance sheet. This implies that Brown & Brown has sufficient cash reserves to meet its short-term debt obligations. Also as of Mar 31, 2020, its total debt to total capital of 30.7% lies below the industry’s average of 55.1%. Further, the company’s times interest earned ratio of 10.1 as of Mar 31, 2020 is good when compared with the industry’s figure of 6.2, implying that its earnings are sufficient to cover interest obligations.
By virtue of its robust capital position, Brown & Brown engages in effective capital deployment in the form of share buybacks and dividend payments.
Notably, the company has surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 7.22%.We believe the company’s strong fundamentals will continue to drive the stock in the days ahead.
Stocks to Consider
Some better-ranked insurance stocks include Trupanion, Inc. (TRUP - Free Report) , MGIC Investment Corporation (MTG - Free Report) and Kinsale Capital Group, Inc. (KNSL - Free Report) . While Kinsale Capital sports a Zacks Rank #1 (Strong Buy), Trupanion and MGIC Investment carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Trupanion operates as a direct-to-consumer monthly subscription service provider of a medical insurance plan for cats and dogs. It has a trailing four-quarter positive earnings surprise of 16.67%, on average.
MGIC Investment provides a critical component of the country's residential mortgage finance system by protecting mortgage investors from credit losses. It has a trailing four-quarter positive earnings surprise of 13.42%, on average.
Kinsale Capital offers various insurance and reinsurance products in the United States. It has a trailing four-quarter positive earnings surprise of 3.44%, on average.
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