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Marsh & McLennan Hits 52-Week High on Strong Earnings, Deals

Zacks Equity Research

Shares of Marsh & McLennan Companies, Inc. MMC hit a 52-week high of $73.52 on strong fourth-quarter results and recent deals.

Over the past year the shares of the company have returned 27% compared ith a return of 19.4% logged by the  S&P 500 Index.

The company capped off another excellent year with robust quarterly revenue growth of 3% on a consolidated basis. GAAP earnings per share (EPS) rose 13% to $3.38 and adjusted EPS increased 12% to a record $3.42. Since 2009, adjusted EPS has grown at a CAGR of 13.3%.

In terms of its full-year performance, the company had an excellent year delivering underlying revenue growth, margin expansion in both segments and strong growth in adjusted EPS.

Marsh & McLennan continues to generate positive operating leverage as adjusted operating income rose 10% to $2.7 billion in 2016. Adjusted margin increased 140 basis points, marking the ninth consecutive year of margin improvement

Investors favorably view growth at the company — both organic and through acquisitions. The company’s focus on streamlining the mix of business by boosting its investment in growth areas while divesting or de-emphasizing other parts of the business, has led to improved returns on equity.

Recently, the company expanded its operations in Latin America, Asia, the Middle East and South Africa. Other initiatives were Marsh’s buildout of MMA and its UK SME strategy; the emergence of cyber, flood and mortgage practices at Marsh and Guy Carpenter; investments such as Workday implementation capabilities at Mercer, global health and benefits technology and the Mercer Marketplace Health Exchange; investments in Oliver Wyman and the digital technology and analytics platform; and the pursuit of high-growth areas in healthcare and the public sector.

In the fourth quarter, Marsh completed its acquisition of Bluefin Insurance Group. Bluefin will be combined with Jelf, acquired at 2015 end, to create a leading SME insurance broker in the UK. Also, MMA completed the acquisition of Jay Smith Lanier, one of the largest privately held insurance brokers in the United States.

In the quarter, Mercer completed the acquisition of Thomsons Online Benefits, a leading global benefit software business. By combining its consulting and broking expertise with Thomson’s technology platform, the company has further positioned itself for sustained leadership and benefits globally.

The company’s broad outlook for 2017 earnings growth has also been well received by investors. Though the company cited headwinds such as modest global economic growth, political instability, foreign currency fluctuations and geopolitical risks, it expects to maintain the last seven-year 3% to 5% growth trend in revenues.

The company also disclosed that it will increase its dividend at a double-digit rate in 2017 and repurchase enough shares to reduce its share count.

Marsh & McLennan carries a Zack Rank # 3 (Hold). Some better-ranked stocks in the insurance space are Everest Re Group, Ltd. RE, The Progressive Corp. PGR and American Financial Group Inc. AFG. While Everest Re and Progressive Corp. sport a Zacks Rank #1 (Strong Buy), American Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Everest Re posted a positive earnings surprise of 121.86% in the fourth quarter. It beat earnings estimates in three out of the last four reported quarters with an average beat of 44%

American Financial Group posted a positive earnings surprise of 22.2% in the fourth quarter. It beat earnings estimates in three out of the last four reported quarters with an average beat of 6.45%.

Progressive posted a positive earnings surprise of 22% in the fourth quarter. It beat earnings estimates in two out of the last four reported quarters with an average beat of 1.32%.

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