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Marsh & McLennan Companies, Inc. MMC has been favoured by investors for quite some time owing to its inorganic growth strategies and a growing top line.
Over the past 30 days, the company has witnessed its 2021 and 2022 earnings estimates move 1.6% and 1% north year over year, respectively.
It retained investors' bullish sentiments by maintaining its beat streak in all the last four quarters, the average being 12.01%. This, in turn, underlines its operational excellence.
Marsh & McLennan’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s 30.3% ROE betters its industry average of 26.9%, reflecting its efficiency in utilizing its shareholders’ funds.
Now let us discuss what makes this leading health insurer an investor favorite.
The company has been substantially gaining from its strategic acquisitions and alliances over time. It made numerous purchases within its different operating units that have so far enabled it to tap new geographical regions, expand within the existing territories, foray into new businesses, develop new segments and specialize within its prevalent operations. In 2019, it purchased JLT to enhance its portfolio.
Moreover, Marsh & McLennan constantly makes efforts to strengthen its MMA arm through its inorganic profile. The year 2020 touched a milestone for MMA in terms of acquired revenues since its establishment in 2009. Precisely, MMA completed eight transactions in 2020, fetching a combined revenue recognition of around $235 million.
In April 2021, MMA bought PayneWest Insurance, which is one of the largest independent agencies in the United States. Notably, MMA is the middle market agency arm of Marsh. Other companies in the same space, such as Brown & Brown, Inc. BRO, Alleghany Corporation Y and Arthur J. Gallagher & Co. AJG also continue to enhance their portfolios through a number of buyouts.
The company is also gaining from the P&C insurance market conditions. The March quarter marked the 14th consecutive period of rate hikes in the commercial P&C insurance marketplace.
The Insurance broker has been witnessing a healthy revenue stream for many years now, driven by its diverse product offerings, a wide geographic presence and strong client retention. Its revenues have been increasing consistently since 2010 (except in 2015, which saw a revenue dip of just 0.4%).
This uptrend continued in 2020 and during the first quarter of 2021 as well wherein its revenues were up 3% and 9%, respectively, courtesy of a strong Risk and Insurances Services Segment. For 2021, the company expects its underlying revenue growth at the high end of its forecast of 3-5% underlying growth.
We expect this momentum to sustain on the back of the company’s geographic penetration, product launches, enhancements of its digital capabilities and branching out into new businesses.
The Risk and Insurance Services segment, which operates through Marsh and Guy Carpenter, has been delivering solid results for the last few quarters. In 2020, revenues from the same rose 8% year over year, accounting for approximately 60% of the company's total last-year revenues. Again, in the first quarter of 2021, the segmental metric grossed $3.2 billion, up 7% on an underlying basis. We expect this upside to continue on the back of its Marsh unit.
Owing to its cash position, the company abides by a disciplined capital management through share buybacks and dividend payments. This instills investor confidence in the stock.
In July 2020, its board of directors hiked the quarterly cash dividend by 2.2%, reflecting its 11th consecutive year of dividend raise. Its current dividend yield of 1.3% is higher than the industry average of 1.1%. The company recommenced share repurchases in the first quarter. It has plans to deploy $3.5 billion of capital this year to dividends, debt reduction, acquisitions and share repurchases.
For the current year, this presently Zacks Rank #2 (Buy) company’s earnings estimate suggests an upside of 12.3% from the year-ago reported figure. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Year to date, the leading insurance broker has gained 18.3%, outperforming its industry's growth of 17.3%.
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Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
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