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Brown & Brown (BRO) Up 2% Since Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Brown & Brown, Inc. BRO. Shares have added about 2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Brown & Brown Q3 Earnings & Revenues Beat Estimates

Brown & Brown reported third-quarter 2017 earnings of 53 cents per share, outpacing the Zacks Consensus Estimate by 8.2%. Also, earnings increased 1.9% year over year.

The quarter witnessed noticeable organic revenue growth across all divisions, partially offset by a rise in expenses. Nonetheless, the company saw an increase in the Commissions and fees segment in the reported quarter.

Behind the Headlines

Total revenue amounted to $475.6 million, edging past the Zacks Consensus Estimate of $474 million by approximately 0.3%. Also, the top line improved 2.9% year over year riding on higher Commissions and fees as well as net investment income. Organic revenue growth was 3.4% in the reported quarter.

Commissions and fees rose 2.8% year over year to $474.6 million.

Investment income skyrocketed 400% year over year to $0.5 million.

Total expenses inched up 1.6% to $351.2 million, driven by a rise in employee compensation and benefits, other operating expenses as well as depreciation.

Net income before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables (EBITDAC) margin contracted 50 basis points to 33.5%.

Financial Update

Brown & Brown exited the third quarter with cash and cash equivalents of $546.5 million, up nearly 6% from the 2016-end level.

Long-term debt of $860.7 million as of Sep 30, 2017 was down 15.5% from $1.0184 billion at the end of 2016.

Dividend Update

In the third quarter, the company’s board of directors announced a quarterly dividend of 14 cents per share.

On Oct 12, 2017, the company’s board approved a quarterly cash dividend of 15 cents per share, reflecting an 11.1% hike from the earlier quarterly cash dividend of 13.5 cents per share. Notably, this dividend raise marks the 24th consecutive year of dividend increase.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to four lower.

Brown & Brown, Inc. Price and Consensus

 

Brown & Brown, Inc. Price and Consensus | Brown & Brown, Inc. Quote

VGM Scores

At this time, Brown & Brown's stock has a poor Growth Score of F, however its Momentum is doing a lot better with a C. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for momentum investors based on our style scores.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.


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