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Arthur J Gallagher (AJG) Hits 52-Week High on Recent Buyouts

Zacks Equity Research

Shares of Arthur J. Gallagher & Co. AJG scaled a fresh 52-week high of $93.41 on Nov 27, eventually closing at $93.30. A number of recent buyouts are likely to have contributed to this rally.

In the past two years, the Zacks Rank #3 (Hold) stock has gained 41.8% compared with the industry’s growth of 34.4%.

Let’s analyze the factors responsible for the stock’s uptick.

Driving Factors

In November 2019, the company has made three acquisitions — BonusDrive, Horseshoe Insurance Services Holdings Ltd. and EWI Re, Inc. The addition of BonusDrive will boost the company’s existing voluntary benefit offerings.

The buyout of Horseshoe Insurance Services strengthened the ILS operations of Arthur J. Gallagher. It also consolidated the company’s position as the one of the best service providers to the world’s risk capital.

EWI Re’s acquisition has strengthened Arthur J. Gallagher's capability to provide complex client solutions.

The company has an impressive record of delivering positive earnings surprise in the last four quarters, the average being 3.25%. This has definitely instilled investors’ optimism in the stock and reflects operational excellence.

Arthur J. Gallagher delivered an impressive performance in third-quarter 2019, with adjusted net earnings of 80 cents per share beating the Zacks Consensus Estimate by 1.27%. Moreover, the bottom line increased 2.6% year over year. The company’s quarterly performance was driven by higher adjusted revenues across Brokerage and Risk Management segments along with strong margin expansion.

Adjusted revenues amounted to nearly $1.8 billion, up 0.7% year over year. However, the top line missed the Zacks Consensus Estimate by 5.1%.

Arthur J. Gallagher is focused on organic sales as well as acquisition and mergers to drive revenues.  In the first nine months of 2019, the company completed 38 acquisitions and generated about $278 million of annualized revenues. In the third quarter, the company closed 14 acquisitions with estimated annualized revenues of about $85.1 million.

The company is likely to benefit from the performance of Brokerage and Risk Management segments. In the Brokerage segment, revenues increased 14% year over year on higher fees and commission as well as supplemental and contingent revenues. Revenues in the Risk Management segment rose 6.3% year over year, mainly owing to higher fees.

Stocks to Consider

Some better-ranked stocks from the same space are Donegal Group Incorporation DGICA, RLI Corporation RLI and Cincinnati Financial Corporation CINF. While Donegal and RLI sport a Zacks Rank # 1(Strong Buy), Cincinnati Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Donegal provides personal and commercial lines of property and casualty insurance to businesses and individuals in the Mid-Atlantic, Midwestern, New England and southern states. The company beat earnings estimates in the trailing four quarters, the average being 248.34%.

RLI underwrites property and casualty insurance in the United States and internationally. The company beat earnings estimates in the trailing four quarters, the average being 154.89%.

Cincinnati Financial provides property casualty insurance products in the United States and offers coverage for commercial casualty, commercial property, commercial auto, and workers' compensation. The company beat earnings estimates in the trailing four quarters, the average being 20.79%.

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