Here's Why You Should Retain Arthur J. Gallagher (AJG) Stock
Arthur J. Gallagher AJG is well poised to grow, banking on the strength of the Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment. These, coupled with optimistic growth projections, make the stock worth retaining in one’s portfolio.
Shares of this Zacks Rank #3 (Hold) insurance broker have gained 6.4% in the past six months, outperforming the industry’s increase of 4.6%.
Earnings of the world’s largest property/casualty third-party claims administrator and the world’s fourth largest insurance broker based on revenues increased 20.7% over the last five years, better than the industry average of 12.4%. The company has a stellar record of beating estimates in the last 22 quarters.
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Growth Drivers
The insurer is on track to generate both organic (particularly international) and inorganic growth. Its focus on tapping opportunities across the globe bodes well for growth. It expects 2024 organic revenues and adjusted EBITDAC margins of the Risk Management and Brokerage segments to be better than the 2023 levels.
In the Brokerage segment, AJG expects organic growth to be 7-9% in 2024. In the Risk Management segment, the company expects organic growth in the 9-11% range and margins around 20% in 2024.
Arthur J. Gallagher’s revenues are geographically diversified with strong domestic and international operations. Its international operations contribute about one-third of revenues. The company expects a hike in international contribution to total revenues, given the number and size of the non-U.S. acquisitions.
AJG has an impressive inorganic growth story. This insurance broker acquired 50 entities in 2023, which contributed about $825 million to estimated annualized revenues. It has quite a strong pipeline with about $350 million of revenues, associated with almost 40 term sheets, either agreed upon or being prepared. AJG continues to expect an M&A capacity of $3.5 billion in 2024 without using any equity.
The company’s solid capital position helps it increase payouts to shareholders. Its dividend has increased at a four-year CAGR of 5.1% and currently yields 0.9%. The board of directors also approved a $1.5 billion share buyback program.
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2024 earnings per share (EPS) is pegged at $10.07, indicating an increase of 15% on 13% higher revenues of $11.2 billion. The consensus estimate for 2025 EPS is pegged at $11.29, indicating an increase of 152.1% on 10.9% higher revenues of $12.4 billion.
The long-term earnings growth rate is currently 10.4%, which is better than the industry average of 9.9%.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Erie Indemnity ERIE, Brown and Brown BRO and Ryan Specialty Holdings RYAN, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Erie Indemnity’s 2024 and 2025 earnings indicates a respective 18.3% and 12.3% year-over-year increase. ERIE delivered a four-quarter average earnings surprise of 11.24%. Shares have risen 22.9% year to date.
The Zacks Consensus Estimate for Brown and Brown’s 2024 and 2025 earnings indicates a respective 13.9% and 8.6% increase year over year. BRO delivered a four-quarter average earnings surprise of 11.19%. Shares of BRO have risen 18.4% year to date.
Ryan Specialty delivered a four-quarter average earnings surprise of 5.05%. The Zacks Consensus Estimate for 2024 and 2025 earnings indicates a respective 28.3% and 20.3% year-over-year increase. Its shares have risen 25.1% year to date.
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Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
Brown & Brown, Inc. (BRO) : Free Stock Analysis Report
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Ryan Specialty Holdings Inc. (RYAN) : Free Stock Analysis Report
