Why Is Brown & Brown (BRO) Up 9.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Brown & Brown (BRO). Shares have added about 9.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Brown & Brown due for a pullback? 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.

Brown & Brown Q1 Earnings Top Estimates, Revenues Up Y/Y

Brown & Brown’s first-quarter 2020 adjusted earnings of 51 cents per share beat the Zacks Consensus Estimate by 10.9%. The bottom line also improved 24.4% year over year.

The company’s results were driven by higher commissions and fees, and improved operational excellence.

Q1 in Details

Total revenues of $699 million outpaced the Zacks Consensus Estimate by 2.4%. Moreover, the top line improved 12.8% year over year. The upside can primarily be attributed to increased commission and fees, and high organic growth.

Commissions and fees grew 12.8% year over year to $696.5 million. Organic revenues improved 5.6% to $627.4 million in the quarter under review.

Investment income surged 9.1% year over year to $1.2 million.

EBITDAC was $242 million, up 22.8% year over year. EBITDAC margin expanded 280 basis points year over year to 34.6%.

Total expenses increased 4.8% to $493.2 million courtesy of a rise in employee compensation and benefits, and amortization, interest and other operating expenses.

Financial Update

Brown & Brown exited first-quarter 2020 with cash and cash equivalents of $385.8 million, down 28.8% from 2019-end level.

Long-term debt of $1.5 billion as of Mar 31, 2020 was down 1.1% from 2019 end.

Net cash provided by operating activities in the first quarter was $33.8 million, up 525.9% year over year.

Acquisition Update

Brown & Brown closed five buyouts in the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -9.49% due to these changes.

VGM Scores

Currently, Brown & Brown has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It's no surprise Brown & Brown has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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