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Willis Towers Watson (WTW) Down 1.6% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Willis Towers Watson (WTW). Shares have lost about 1.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Willis Towers Watson due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Willis Towers Q4 Earnings Top Estimates, Revenues Lag

Willis Towers Watson Public Limited Company delivered fourth-quarter 2021 adjusted earnings of $5.67 per share, which beat the Zacks Consensus Estimate of $5.35.  The bottom line improved 9% year over year.

WTW witnessed a solid performance of the Human Capital and Benefits (HCB) segment, Investment, Risk & Reinsurance, and Benefits Delivery & Administration, which was offset by softness in Corporate Risk & Broking.

Operational Update

Willis Towers Watson posted adjusted consolidated revenues of $2.7 billion, up 1% year over year on a reported basis. Revenues increased 4% on an organic basis and 2% on a constant currency basis. The top line missed the Zacks Consensus Estimate by 3.4%.

The total cost of providing services decreased 3.5% year over year to $2 billion due to lower salaries and benefits, operating expenses, depreciation and amortization.

Adjusted operating income was $871 million, up 1.4% year over year.  Margin expanded 180 basis points (bps) to 32.2%.

Adjusted EBITDA was $1 billion, up 4.3% year over year. Adjusted EBITDA margin was 37.9%, up 400 basis points (bps).

Quarterly Segment Update

Human Capital & Benefits: Total revenues of $884 million increased 2% year over year (up 3% both constant currency and organic basis). On an organic basis, the growth was largely driven by Technology and Administration Solutions, in part supported by Health and Benefits and Talent and Rewards. The operating margin was 31.2%, reflecting a decrease of 10 bps.

Corporate Risk & Broking: Total revenues of $882 million decreased 1% year over year (up 1% in both constant currency and organic basis). On an organic basis, North America led the segment with new business generation alongside strong renewals. Revenues decreased in Great Britain, Western Europe and International. The operating margin was 31.2% in the quarter under review, down 120 bps.

Investment, Risk & Reinsurance: Total revenues of $199 million decreased 2% from the prior-year quarter (2% down constant currency and 32% increase organic). Organic growth was driven by revenues recorded in connection with a book-of-business settlement. The operating margin was 25.3%, up 1280 bps.

Benefits Delivery & Administration: Total revenues of $729 million improved 16% (up 5% both constant currency and organic). The increase was driven by Individual Marketplace, primarily by TRANZACT. Benefits Outsourcing revenues improved too. The operating margin was 49.2%, down 150 bps.

Full-Year Highlights

Adjusted earnings of $11.70 per share missed the Zacks Consensus Estimate of $13.38. The bottom line increased 19% year over year. Total revenues increased 4% from the year-ago quarter to about $9 billion but missed the Zacks Consensus Estimate by a whisker.

Financial Update

Cash and cash equivalents of $4.7 billion at 2021 end more than doubled from the 2020-end level. Long-term debt decreased 14.8% to $4 billion at quarter-end from 2020 end.

Shareholders’ equity increased 21.7% from the level on Dec 31, 2020 to $13.3 billion as of Dec 31, 2021. Cash flow from operations was $2.1 billion in 2021, up 16% year over year. Free cash flow increased 23% to $1.9 billion in 2021.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -12.22% due to these changes.

VGM Scores

Currently, Willis Towers Watson has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Willis Towers Watson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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