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After suffering from COVID-19 pandemic, the insurance brokerage industry is poised for growth. Prudent underwriting, better pricing, constant mergers and acquisitions, cash flows, cost synergies, technological upgrade plus demand for insurance products and global expansion should drive growth.
In fact, per ResearchAndMarkets.com, the global insurance brokers and agents market is predicted to grow from $350.24 billion in 2020 to $362.54 billion in 2021. The surge is likely to happen on the back of initiatives taken by the companies to fight the pandemic blues. The market is projected to reach a whopping $457.31 billion in 2025 per ResearchAndMarkets.com.
The adoption of technology in the insurance brokerage industry is commendable. This, in turn, will increase their sales, aid margins, improve business efficiency and cut costs. Leading companies like Aon plc. AON and Marsh & McLennan Companies, Inc. MMC are offering insurance portals and digital distribution channels.
Since the market is somewhat fragmented, the companies are taking up both organic and inorganic growth strategies to compete in the market. Several companies are resorting to merger and acquisition activities to enhance their businesses and expand their portfolio.
The overall bullish scenario makes us believe that growth will be steady in this industry, which should bolster prospects of companies with strong business fundamentals. The Zacks Insurance - Brokerage industry, which belongs to the top 50% of the Zacks Industry Rank, has gained 16.3% in the past six months, outperforming the Zacks S&P 500 composite’s growth of 15.1%.
Against this backdrop, we will compare the two leading brokerage insurers Brown & Brown, Inc. BRO and Marsh & McLennan. Both stocks carry a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of Brown & Brown and Marsh & McLennan have gained 16.2% and 21.7% in the past six months, respectively.
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Let's analyze certain other parameters to find out which company is better positioned.
Earnings Surprise History
A stock’s earnings surprise track helps investors get an idea about its performance in the previous quarters.
Earnings of Brown & Brown beat estimates in all the trailing four quarters the average being 20.1%. Marsh & McLennan’s bottom line beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 12%. Thus, Brown & Brown has an edge over Marsh & McLennan here.
For 2021, the Zacks Consensus Estimate for Brown & Brown has moved 9.4% north to $1.97 in the past 60 days while the same for Marsh & McLennan has been revised 5% upward to $5.63.
Return on Equity
Return on equity (ROE) is a profitability measure, which accounts for profits generated on shareholders’ equity. Hence, higher ROE reflects the company’s efficiency in using its shareholders’ funds and is preferred by all equity investors.
Marsh & McLennan’s ROE of 30.3% compares favorably with Brown & Brown’s ROE of 14.4%.
Price-to-earnings value is one of the multiples used for valuing insurance brokers. Compared with the brokerage insurance industry’s forward 12-month P/E ratio of 24.9, Brown & Brown and Marsh & McLennan have a reading of 28.5 and 26.3, respectively. Marsh & McLennan has a better reading than Brown & Brown’s.
Debt to Equity
Both companies have higher debt-to-equity ratio than the industry average of 90.8X. However, Brown & Brown’s leverage ratio of 54.3X betters Marsh & McLennan’s ratio of 106.7X. Therefore, Brown & Brown is at an advantage over Marsh & McLennan on this front.
Our comparative analysis shows that Marsh & McLennan is better-placed than Brown & Brown with respect to price performance, return on equity and valuation. Meanwhile, Brown & Brown scores higher in terms of earnings surprise, leverage ratio and estimate revision. As the scale is slightly tilted toward Brown & Brown, the stock discernibly makes a more promising investment proposition.
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Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
Aon plc (AON) : Free Stock Analysis Report
Brown & Brown, Inc. (BRO) : Free Stock Analysis Report
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