Why is Brown & Brown (BRO) Up 4.9% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Brown & Brown, Inc. BRO. Shares have added about 4.9% in that time frame.

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

Brown & Brown Q1 Earnings Top on Revenue Rise, Tax Cut

Brown & Brown, Inc. reported first-quarter 2018 earnings of 33 cents per share, outpacing the Zacks Consensus Estimate by 13.79%. Also, the bottom line soared 50% year over year.

The quarter witnessed strong organic revenue growth along with increase in commissions and fees. Though expenses increased, the bottom line benefited from low tax incidence.

Behind the Headlines

Total revenues amounted to $501.5 million, edging past the Zacks Consensus by 1.93%. Moreover, the top line improved about 7.8% year over year, riding on higher Commissions and fees plus net investment income. Organic revenue growth was 5.7% in the reported quarter.

Commissions and fees rose 12.6% year over year to $500.4 million.

Investment income surged 50% year over year to $0.6 million.

Total expenses increased nearly 8.2% to $383.1 million, driven by a rise in employee compensation and benefits as well as other operating expenses.

Net income before interest, income taxes, depreciation, amortization and change in estimated acquisition earn-out payables (EBITDAC) margin contracted 160 basis points to 31.2%.

Financial Update

Brown & Brown exited the first quarter with cash and cash equivalents of $826.4 million, up 0.3% from the 2017-end level.

Long-term debt of $851.5 million as of Mar 31, 2018 was down 0.5% from the level at 2017 end.

Net cash provided by operating activities of $79.5 million was down 11.7% year over year.

Adoption of New Accounting Standard

On Jan 1, 2018, Brown & Brown adopted FASB Accounting Standards Update No. 2014-09, ‘Revenue from Contracts with Customers (Topic 606)’ and Accounting Standards Codification (Topic 340) — Other Assets and Deferred Cost. This drove the top line by $27.4 million and the bottom line by 4 cents.

Dividend Update

The board of directors approved a dividend of 7.50 cents per share, payable May 18, 2018 to shareholders of record on May 9, 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to three lower.

VGM Scores

At this time, BRO has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

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

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