Arthur J. Gallagher & Co.’s AJG strong performing Brokerage and Risk Management segments, strategic buyouts to capitalize on growing markets opportunities, effective capital deployment and upbeat guidance, along with favorable growth estimates make it a good investment choice.
This largest property/casualty third-party claims administrator and the fourth largest globally among insurance brokers based on revenues has a stellar track record of beating estimates in the last 14 quarters.
Zacks Rank & Price Performance
Arthur J. Gallagher currently carries a Zacks Rank #2 (Buy). Year to date, the stock has gained 3.1%, outperforming the industry’s increase of 1.4%. The Finance sector and the S&P 500 composite index have lost 2% and 3.5%, respectively in the said time frame.
Image Source: Zacks Investment Research
Optimistic Growth Projections
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2022 earnings is pegged at $6.46, indicating a 17.9% increase from the year-ago reported figure on 7.5% higher revenues of $8.7 billion. The consensus estimate for 2023 earnings stands at $7.32, indicating a 13.3% increase from the year-ago reported figure on 10.1% higher revenues of $9.6 billion.
The long-term earnings growth rate is currently pegged at 11.6%, better than the industry average of 9.6%.
Northbound Estimate Revision
The Zacks Consensus Estimate for 2022 and 2023 earnings has moved 6.4% and 6.2% north in the past 30 days, reflecting analyst optimism.
Business Tailwinds
Continued strong operational performance in the Brokerage and Risk Management segments is likely to drive revenues. Its focus on lowering costs is likely to favor margins.
The broker boasts an impressive inorganic growth story. AJG closed 38 mergers with more than $1 billion of estimated annualized revenues and more than 110 basis points of adjusted EBITDAC margin expansion in 2021. The insurance broker’s merger and acquisition pipeline is quite strong, with about $200 million of revenues, associated with about 35 term sheets either agreed upon or being prepared.
Given the number and size of the non-U.S. acquisitions, AJG expects international contribution to total revenues to increase. Presently, international operations contribute about one-third of total revenues.
Arthur J. Gallagher has a solid financial position, fueled by a strong operational performance. AJG has a $1.5 billion share repurchase authorization in place.
Impressive Dividend History
Banking on stable cash flow, Arthur J. Gallagher has increased dividends at a seven-year CAGR (2015-2021) of 3.8%, with dividends currently yielding 1.2%, better than the industry average of 1.1%, making the stock an attractive pick for yield-seeking investors.
Upbeat 2022 Guidance
Arthur J. Gallagher estimates the EBITDAC margin to remain close to 19% at Risk Management. Solid retention coupled with new client wins in the fourth quarter of 2021 are likely to drive organic growth in the high single-digit range. The revenue momentum is expected to continue.
AJG expects solid operating cash flows in 2022.
Other Stocks to Consider
Some other top-ranked stocks from the insurance industry are United Fire Group UFCS, Cincinnati Financial Corporation CINF and Fidelity National Financial FNF, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for UFCS’ 2022 and 2023 earnings indicates an 18.3% and a 15% respective year-over-year increase. United Fire Group delivered a four-quarter average surprise of 275.45%.
The Zacks Consensus Estimate for CINF’s 2022 and 2023 earnings has moved 5.7% and 5.5% north, respectively, in the past 60 days. Cincinnati Financial delivered a four-quarter average surprise of 38.48%.
The Zacks Consensus Estimate for FNF’s 2022 earnings has moved 3.3% north in the past seven days. Fidelity National delivered a four-quarter average earnings surprise of 31.73%.
Shares of UFCS and CINF have gained 32.4% and 18.6%, respectively, year to date, while that of FNF have lost 12.7% in the same time frame.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cincinnati Financial Corporation (CINF): Free Stock Analysis Report
Arthur J. Gallagher & Co. (AJG): Free Stock Analysis Report
Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
United Fire Group, Inc (UFCS): Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
