Is Brown & Brown Inc (BRO) Stock Fairly Valued?
With a daily gain of 2.12%, a 3-month gain of 9.26%, and an Earnings Per Share (EPS) of 2.58, Brown & Brown Inc (NYSE:BRO) sparks interest among investors. But is this stock fairly valued? This article provides a comprehensive valuation analysis of Brown & Brown Inc (NYSE:BRO), offering insights for informed investment decisions.
Introduction to Brown & Brown Inc (NYSE:BRO)
Brown & Brown Inc is a leading insurance agent and broker that offers insurance products and services, primarily in the areas of property, casualty, and employee benefits. By connecting customers with insurance companies, it generates revenue through commissions and direct fees from customers. The company operates mainly in the United States, with significant exposure in Florida.
With a current stock price of $72.09 per share and a market cap of $20.40 billion, we compare this with the GF Value, an estimation of the stock's fair value. This comparison forms the basis for a deeper examination of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that indicates the intrinsic value of a stock. The GF Value Line on our summary page offers a snapshot of the stock's fair trading value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates.
If the stock price significantly exceeds the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher. According to GuruFocus Value calculation, Brown & Brown Inc (NYSE:BRO) appears to be fairly valued.
As Brown & Brown is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Brown & Brown's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing its stock. Brown & Brown's cash-to-debt ratio of 0.16 is lower than 90.33% of companies in the Insurance industry. GuruFocus ranks Brown & Brown's overall financial strength at 5 out of 10, indicating fair financial strength.
Profitability and Growth of Brown & Brown
Investing in profitable companies carries less risk. Brown & Brown has been profitable for 10 years over the past decade. With revenues of $4 billion and Earnings Per Share (EPS) of $2.58 in the past 12 months, its operating margin of 27.21% is better than 87.5% of companies in the Insurance industry. GuruFocus ranks Brown & Brown's profitability as strong.
One key factor in company valuation is growth. Companies that grow faster create more value for shareholders. Brown & Brown's average annual revenue growth is 13.8%, ranking better than 81.76% of companies in the Insurance industry. Its 3-year average EBITDA growth is 18.4%, ranking better than 72.86% of companies in the Insurance industry.
Comparing ROIC and WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The past 12 months have seen Brown & Brown's ROIC at 6.92, and its WACC at 8.55.
Conclusion
In conclusion, Brown & Brown Inc (NYSE:BRO) stock appears to be fairly valued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 72.86% of companies in the Insurance industry. For more details about Brown & Brown stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
