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S&P Positive on Marsh & McLennan

Zacks Equity Research

Last week, Marsh & McLennan Cos. (MMC) witnessed an outlook upgrade from Standard & Poor's Ratings Services (S&P), which reflected the company’s steady operating growth and strong risk profile. However, the long-term credit rating remained at “BBB-”.

Accordingly, S&P lifted its outlook on Marsh & McLennan to ‘positive’ from ‘stable’ based on its improved operating leverage that is projected to accelerate in 2014 and beyond. The strategy of expansion through acquisitions and diversified product portfolio is also bearing fruit, while improving the client base. Alongside, a strong capital and cash flow position boosts liquidity and financial flexibility, thereby eliminating any significant risk on financial leverage.

Marsh & McLennan’s consistent efforts to tap cross-selling opportunities, maintain cost discipline and improve pricing initiatives have enhanced new business production and retention rates in both the broking and consulting businesses. Consequently, the company has been enjoying a dominant market position, gaining strong competitive edge in the peer group.

On this growth curve, S&P believes that the company is modestly attuned to achieve organic growth of low- to mid-single digit for 2013 and EBITDA margins of around 20%, excluding any litigation or restructuring charges, in both 2013 and 2014.

Previously in 2010, S&P had lowered its outlook on Marsh & McLennan to ‘negative’ from ‘stable’ based on its $500 million litigation settlement, which was raised back to stable in Nov 2011. However, these past three years, the company has shown a steady and modest improvement in its organic and inorganic growth, thereby sailing through the recent economic turmoil fairly well.

While sluggish macro-economic factors and antitrust litigation charges could act as growth dampeners, S&P believes that Marsh & McLennan has a strong potential to outperform its peers in the future, banking on its size, diverse product offering, global presence and technical expertise.

While Marsh & McLennan carries a Zacks Rank #3 (Hold), other outperformers of the financial sector include Validus Holdings Ltd. (VR), Willis Group Holdings Public Ltd. Co. (WSH) and Moody’s Corp. (MCO). All these stocks carry a Zacks Rank #2 (Buy).

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Read the Full Research Report on MCO

Read the Full Research Report on MMC

Read the Full Research Report on VR

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