Yahoo Finance Arthur J. Gallagher (AJG) Rises 15% YTD: More Room to Grow?
Shares of Arthur J. Gallagher & Co. AJG have gained 14.7% year to date, compared with the industry’s increase of 10.2%, the Finance sector’s rise of 5.8% and the Zacks S&P 500 composite’s gain of 12.1%. With a market capitalization of $56.3 billion, the average volume of shares traded in the last three months was 0.8 million.
Continued strong performance of its Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment should continue to drive this Zacks Rank #3 (Hold) insurance broker.
Earnings of the world’s largest property/casualty third-party claims administrator and the world’s fourth-largest insurance broker based on revenues increased 20.7% over the last five years, better than the industry average of 13.8%. The company has a stellar record of beating estimates in the last 23 quarters.
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Can the Stock Retain the Momentum?
The insurer is on track to generate both organic (particularly international) and inorganic growth. Its focus on tapping opportunities across the globe, solid retention and improving renewal premium across all major geographies and most product lines bodes well for growth. It expects 2024 organic revenues and adjusted EBITDAC margins of the Risk Management and Brokerage segments to be better than the 2023 levels.
In the Brokerage segment, AJG expects organic growth to be 7-9% in 2024. In the Risk Management segment, the company expects organic growth in the 9-11% range and margins around 20.5% in 2024.
Arthur J. Gallagher’s revenues are geographically diversified with strong domestic as well as international operations. Its international operations contribute about one-third of revenues. Given the number and size of its non-U.S. acquisitions, AJG expects international contribution to total revenues to trend up.
The company has an impressive inorganic growth story. It has quite a strong pipeline with about $350 million of revenues, associated with almost 40 term sheets, either agreed upon or being prepared. AJG continues to expect an M&A capacity of $3.5 billion in 2024 and $4.5 billion in 2025 without using any equity.
Consistent cash flow backed by solid operational performance helps AJG maintain a solid capital position, which, in turn, helps it distribute wealth to shareholders in the form of dividend hikes and share repurchases. Its dividend has increased at a three-year CAGR of 7.7% and currently yields 1%. The board of directors also approved a $1.5 billion share buyback program.
The Zacks Consensus Estimate for Arthur J. Gallagher’s 2024 earnings per share (EPS) is pegged at $10.08, indicating an increase of 15.1% on 15.7% higher revenues of $11.5 billion. The consensus estimate for 2025 EPS is pegged at $11.25, indicating an increase of 11.6% on 9.7% higher revenues of $12.6 billion.
The long-term earnings growth rate is currently 10.6%, which is better than the industry average of 9.7%. It has a Growth Score of A.
The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 2 cents and 3 cents north, respectively, in the past 30 days, reflecting analyst optimism.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Arch Capital Group Ltd ACGL, The Allstate Corporation ALL and Brown and Brown BRO.
Arch Capital delivered a four-quarter average earnings surprise of 28.41%. The stock has gained 38.5% year to date. The Zacks Consensus Estimate for ACGL’s 2024 and 2025 earnings indicates a year-over-year increase of 1.2% and 5.2%, respectively. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Allstate delivered a four-quarter average earnings surprise of 41.88%. The stock has gained 20.2% year to date. The Zacks Consensus Estimate for ALL’s 2024 and 2025 earnings indicates a year-over-year increase of 1,479% and 14.7%, respectively. It carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Brown and Brown’s 2024 and 2025 earnings indicates a respective 24.5% and 7.9% increase year over year. BRO delivered a four-quarter average earnings surprise of 11.90%. Shares of BRO have risen 28.6% year to date. It carries a Zacks Rank #2.
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