Marsh & McLennan's Expansion Initiatives Look Promising - Analyst Blog
On May 14, 2015, we issued an updated research report on Marsh & McLennan Companies, Inc. MMC.
Marsh & McLennan’s first-quarter earnings surpassed the Zacks Consensus Estimate and increased year over year. Decent revenue growth across segments and controlled expenses led to the upside and drove margins. Lower share count further boosted the bottom line. Nonetheless, a strong U.S. dollar and lower interest rates were partial dampeners.
Marsh & McLennan’s strategic acquisitions and well-executed restructuring initiatives generated new clients, triggering growth. With the view to further expand business globally, the company extended its coverage to Asia-Pacific, Africa and Latin America, thereby substantially contributing to top-line growth and insurance margins.
Marsh & McLennan remains focused on cost reduction and expense management. Over the last couple of years, the company implemented cost-saving initiatives by divesting redundant units, acquisitions and by moderating its expenses on compensation and benefits and other operations. These helped the company enhance its organic growth and operating leverage, deliver cost efficiency and boost operating income.
Marsh & McLennan is focused on returning more value to its shareholders via repurchase of shares. To that end, the company deployed $300 million to buy back shares in the first quarter and has $1 billion remaining under its authorization. With a strong balance sheet and the ability to generate a healthy cash flow, the company is expected to indulge in more buybacks going forward, thereby sharing more profits with investors.
However, Marsh & McLennan has faced several lawsuits over the years. Lawsuits and related settlement charges not only affect a company’s financials but also hamper its goodwill, thereby leading to increased expenses and hence, contraction of margins. Moreover, these lawsuits have affected new production and customer retention initiatives of the company.
Stiff competition and pricing pressure have also affected the new business production of the company. The consistent fall in asset management fees in alternative investments, due to the change in demand-supply dynamics in the market, reduces a primary revenue source and weakens the competitive leverage in the market.
Additionally, the U.K., Canada, Australia, France and Bermuda account for 60% of Marsh & McLennan’s non-U.S. pre-tax income. The dependence on international business raises caution on account of currency fluctuations, interest and tax rates.
Currently, Marsh & McLennan carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks from the same space include Markel Corp. MKL, State Auto Financial Corp. STFC and White Mountains Insurance Group, Ltd. WTM. All these stocks sport a Zacks Rank #1 (Strong Buy).
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MARSH &MCLENNAN (MMC): Free Stock Analysis Report
MARKEL CORP (MKL): Free Stock Analysis Report
STATE AUTO FINL (STFC): Free Stock Analysis Report
WHITE MTN INS (WTM): Free Stock Analysis Report
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