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Arthur J. Gallagher (AJG) Up 52% in a Year: More Upside Left?

·4 min read

Arthur J. Gallagher & Co. AJG shares have rallied 52% year to date compared with the industry's increase of 32.6% and the Finance sector’s increase of 45.6%. The Zacks S&P 500 composite has risen 40.6% in the said time frame. With market capitalization of $29.8 billion, average volume of shares traded in the last three months was 1.1 million.

Zacks Investment Research
Zacks Investment Research

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Strong results at Brokerage and Risk Management segments and solid cash flows continue to aid Arthur J. Gallagher. The company has a solid track of beating earnings estimates in the last four reported quarters, with the average beat being 18.81%.

Can it Retain the Momentum?

The Zacks Consensus Estimate for 2021 and 2022 earnings has moved up 2.2% and 6.5%, respectively in the past 60 days, reflecting analysts’ optimism.

This Zacks Rank #3(Hold) insurance broker boasts impressive growth, driven by organic sales, acquisitions and mergers.

The company is poised to generate improved revenues driven by growing contributions from both Brokerage and Risk Management segments. The segments in turn should continue to benefit from rate increase and exposure growth.

Its merger and acquisition pipeline is quite strong with about $250 million of revenues, associated with about 40 term sheets either agreed upon or being prepared. The fourth largest insurance broker globally (based on revenues) targets about $2.5 billion of mergers and acquisitions with free cash and debt in 2021.

Also, given the number and size of the non-U.S. acquisitions, Arthur J. Gallagher expects international contribution to total revenue to increase.

Management estimates organic growth at Brokerage segment to be better than 2020 level. It further estimates 2021 organic growth in Risk Management to be closer to pre-COVID levels in the mid-single-digit range.

The company also remain focused on controlling costs to aid margin expansion and thus intends to lower expense by $65 million to $70 million per quarter.

Banking on solid cash flows, the company’s dividend witnessed a six-year CAGR (2016-2021) of 4.8% and currently yields 1.3%, better than the industry average of 1.1%. It also has 7.8 million shares repurchase authorization remaining. It estimates annual cash flows to improve by about $125 million to $150 million in 2022.

The Zacks Consensus Estimate for 2021 earnings is pegged at $5.02, indicating a year-over-year increase of 6.4%. The consensus estimate for 2022 earnings is pegged at $5.41, implying a year-over-year increase of 7.7%. The expected long-term earnings growth rate is pegged at 7.7%.

Stocks to Consider

Some better-ranked stocks from the insurance space are Brown & Brown BRO, Marsh & McLennan Companies MMC, and Cincinnati Financial Corporation CINF, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brown & Brown delivered 25.00% earnings surprise in the last reported quarter.

Marsh & McLennan delivered 17.06% earnings surprise in the last reported quarter.

Cincinnati Financial delivered 30.48% earnings surprise in the last reported quarter.

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Cincinnati Financial Corporation (CINF) : Free Stock Analysis Report

Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report

Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report

Brown & Brown, Inc. (BRO) : Free Stock Analysis Report

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