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Arthur J. Gallagher (AJG) on a Buyout Spree, Boosts Portfolio

Arthur J. Gallagher & Co. AJG recently acquired Allied Risk Management through Artex Risk Solutions, Inc., AJG’s captive and alternative risk transfer solutions subsidiary. The buyout will help AJG consolidate its portfolio of professional services.

Dublin, Ireland-based Allied Risk Management provides insurance and reinsurance management services as well as actuarial services to clients globally. Thus, the buyout will enhance Artex's insurance management and actuarial capabilities.

AJG seems to be on an acquisition spree. The insurance broker recently acquired Mavco Insurance Group and RHP General Agency, Inc. While the addition of Mavco Insurance Group will consolidate the acquirer’s presence in Perth, Australia, RHP General Agency will strengthen its capabilities in the residential property space and provide strong cross-selling opportunities.

Arthur J. Gallagher has an impressive inorganic story with several buyouts made in Brokerage and Risk Management segments. This insurance broker acquired 10 entities in the first quarter of 2023 that contributed about $69 million to estimated annualized revenues. AJG has a strong merger and acquisition pipeline with about $350 million of revenues, associated with about 45 term sheets either agreed upon or being prepared.

Arthur J. Gallagher’s revenues are geographically diversified with strong domestic and international operations, with the latter contributing about one-third of revenues. The company expects a hike in international contribution to total revenues, given the number and size of non-U.S. acquisitions.

A solid capital position supports AJG in its growth initiatives and it thus remains focused on continuing its tuck-in mergers and acquisitions. The company expects an M&A capacity of more than $3 billion through the end of 2023.

This Zacks Rank #3 (Hold) insurance broker is inclined toward long-term growth strategies for delivering organic revenue improvement and pursuing strategic mergers and acquisitions. AJG is focused on productivity improvements and quality enhancements that should help it post sturdy numbers in the future.  

Shares of Arthur J. Gallagher have gained 15.1% year to date, outperforming the industry’s 7.8% increase. The efforts to ramp up its growth profile and capital position should continue to drive the share price higher.

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Given the insurance industry’s adequate capital level, players like Brown & Brown, Inc. BRO pursue strategic mergers and acquisitions. BRO’s subsidiary acquired assets of Brownlee Agency, Inc. The addition of Brownlee Agency will boost Brown & Brown’s presence in Georgia.

Brown & Brown and its subsidiaries continuously make strategic acquisitions to expand globally, add capabilities and boost operations. Also, these strategic buyouts help Brown & Brown increase commissions and fees, which, in turn, drive revenues. Brown & Brown’s impressive growth is driven by organic and inorganic means across all segments. Consistent operational results have been aiding Brown & Brown in generating solid cash flows for deployment in strategic initiatives.

Stocks to Consider

Some better-ranked insurers from the insurance industry are Erie Indemnity (ERIE) and Ryan Specialty Holdings RYAN.

Estimates for Erie Indemnity’s 2023 and 2024 earnings have moved 3.9% and 11.7% north, respectively, in the past 30 days. ERIE sports 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 ERIE’s 2023 and 2024 earnings per share indicates a year-over-year increase of 26.1% and 13.6%, respectively. In the year-to-date period, ERIE has lost 7%.

The Zacks Consensus Estimate for Ryan Specialty Holdings’ 2023 and 2024 earnings per share indicates a year-over-year increase of 15.7% and 23.3%, respectively. In the year-to-date period, RYAN has gained 6.3%.

RYAN’s earnings surpassed estimates in two of the last four quarters, missed in one, and met estimates in one, the average beat being 2.67%. The stock carries Zacks Rank #2 (Buy).


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Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report

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