Is Willis Towers Watson PLC (WTW) Modestly Undervalued?
Willis Towers Watson PLC (NASDAQ:WTW) experienced a daily loss of -3.86%, and a 3-month loss of -10.93%. The company's Earnings Per Share (EPS) is 9.88. This article seeks to answer the question: is Willis Towers Watson PLC modestly undervalued? The valuation analysis that follows will provide a detailed exploration of the company's intrinsic value.
Company Overview
Willis Towers Watson PLC was established in January 2016 following the merger of Towers Watson and Willis Group. The company operates as a global advisory, insurance brokerage, and solutions firm. It offers services in two business segments: health, wealth & career (consulting operations) and risk & brokering (brokerage operations). With approximately 47,000 employees, the company has a market cap of $21.30 billion and sales of $9.10 billion. Despite a recent stock price of $203.44, our analysis suggests that the fair value (GF Value) of Willis Towers Watson PLC is $267.67.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line provides an overview of the fair value that the stock should be traded at.
Based on these factors, Willis Towers Watson PLC appears to be modestly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given that Willis Towers Watson PLC is currently undervalued, the long-term return of its stock is likely to be higher than its business growth.
These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's important to review a company's financial strength before deciding whether to buy shares. Willis Towers Watson PLC has a cash-to-debt ratio of 0.26, ranking worse than 87.63% of companies in the Insurance industry. Based on this, GuruFocus ranks Willis Towers Watson PLC's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Willis Towers Watson PLC has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $9.10 billion and Earnings Per Share (EPS) of $9.88. Its operating margin of 15.03% is better than 78.57% of companies in the Insurance industry. Overall, GuruFocus ranks Willis Towers Watson PLC's profitability as fair.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Willis Towers Watson PLC is 7.1%, which ranks better than 61.93% of companies in the Insurance industry. The 3-year average EBITDA growth rate is 5.5%, which ranks better than 50.18% of companies in the Insurance industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Willis Towers Watson PLC's ROIC is 3.98 while its WACC came in at 7.78.
Conclusion
Overall, Willis Towers Watson PLC (NASDAQ:WTW) stock shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 50.18% of companies in the Insurance industry. To learn more about Willis Towers Watson PLC stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
