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Why You Should Hold on to Arthur J. Gallagher (AJG) Stock

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·4 min read
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Arthur J. Gallagher & Co. AJG is well-poised for growth, given higher fees from clients, improved supplemental and contingent revenues and prudent capital deployment.

Growth Projections

The Zacks Consensus Estimate for Arthur J. Gallagher’s 2022 earnings is pegged at $7.79, indicating a 42.1% increase from the year-ago reported figure on 5.2% higher revenues of $8.5 billion. The consensus estimate for 2023 earnings stands at $8.72, indicating an 11.9% increase from the year-ago reported figure on 10.9% higher revenues of $9.5 billion.

Estimate Revision

The Zacks Consensus Estimate for 2022 and 2023 has moved 0.1% and 0.2% north, respectively in the past 30 days. This should instill investors' confidence in the stock.

Earnings Surprise History

AJG has a stellar track record of beating estimates in the last seven quarters.

Zacks Rank & Price Prformance

Arthur J. Gallagher currently carries a Zacks Rank #3 (Hold). In the past year, the stock has gained 12.5% against the industry’s decrease of 6.7%.

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Business Tailwinds

Arthur J. Gallagher’s revenue growth has been improving over the past several years, attributable to a solid performance of the Brokerage and Risk Management segments.

Higher commissions from underwriting enterprises, higher fees from clients, improved supplemental and contingent revenues from brokerage operations and higher organic revenues are likely to drive the performance of both segments.

Arthur J. Gallagher boasts impressive growth, driven by organic sales, acquisitions and mergers.  It completed and integrated 638 acquisitions from Jan 1, 2002 through Dec 31, 2021.  AJG closed five new tuck-in brokerage mergers, representing about $32 million of estimated annualized revenues in the first quarter of 2022. The merger and acquisition pipeline is quite strong with about $250 million of revenues, associated with about 40 term sheets either agreed upon or being prepared. In the first quarter, Arthur J. Gallagher closed five acquisitions with estimated annualized revenues of about $32.2 million.

The brokerage insurer expects to witness opportunity for organic revenue growth from existing clients, growing claim counts and new business and projects organic growth to be around 10% per quarter for the remainder of 2022.

The brokerage insurer boasts a solid balance sheet with high liquidity and improving leverage. At the end of the quarter, cash and cash equivalents increased 31.3% from the 2021-end level.

Impressive Dividend History

Banking on stable cash flow, Arthur J. Gallagher has increased dividends at a seven-year CAGR (2016-2022) of 3.8%, with dividends currently yielding 1.3%, better than the industry average of 1.1%, making the stock an attractive pick for yield-seeking investors.

Upbeat 2022 Guidance

AJG expects to generate $125 million to $150 million in cash flow in 2022. For 2022, Arthur J. Gallagher estimates quarterly margins to be closer to its expectation of 19%.

Stocks to Consider

Some better-ranked insurers include W.R. Berkley Corporation WRB, HCI Group, Inc. HCI and Ryan Specialty Group Holdings, Inc. RYAN. While W.R. Berkley and HCI Group carry a Zacks Rank #1 (Strong Buy), Ryan Specialty Group carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 27.76%. In the past year, W.R. Berkley's stock has increased 41.5%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 6.3% and 6.2% north, respectively, in the past 60 days.

The Zacks Consensus Estimate for HCI Group’s 2022 and 2023 earnings has moved 33.3% and 40% north, respectively, in the past 30 days. In the past year, HCI Group stock has lost 21.2%.

The Zacks Consensus Estimate for 2022 and 2023 earnings per share indicates year-over-year increases of 700% and 75%, respectively.

The Zacks Consensus Estimate for RYAN’s 2022 and 2023 earnings has moved 3.4% and 4.3% north in the past 30 days.

Ryan Specialty delivered a four-quarter average earnings surprise of 19.7%. In the past year, RYAN stock has gained 41.3%.


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W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
 
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