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Arthur J. Gallagher (AJG) Rises 12% YTD: More Upside Left?

·4-min read

Shares of Arthur J. Gallagher & Co. AJG have rallied 12.4% in a year compared with the  industry’s increase of 0.04%. The Finance sector and the Zacks S&P 500 composite declined 8.6% and 10.3%, respectively in the same time frame. With a market capitalization of $40.1 billion, the average volume of shares traded in the last three months was about 0.8 million.

Strong performing Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities, effective capital deployment and upbeat guidance continue to drive this Zacks Rank #3 (Hold) insurance broker. The Zacks Consensus Estimate for 2022 has moved 2 cents north in the past 30 days, reflecting analysts’ optimism.

This insurance broker is the largest property/casualty third-party claims administrator and the fourth largest globally among insurance brokers based on revenues. It has a stellar track record of beating estimates in the last 16 quarters.

Can AJG Retain the Momentum?

The Zacks Consensus Estimate for Arthur J. Gallagher’s 2022 earnings is pegged at $7.76, indicating an increase of 41.6% on 4.7% higher revenues of $8.5 billion. The consensus estimate for 2023 earnings is pegged at $8.63, indicating an increase of 11.3% on 10.4% higher revenues of $9.4 billion.

The long-term earnings growth rate is currently pegged at 10%.

Sustained strong performance at its Brokerage and Risk Management segments should drive revenues.

Continued revenue improvement and focus on lowering costs are likely to favor margin expansion. Full-year 2022 EBITDAC margin is expected to remain close to 19%. In Brokerage, the insurance broker is poised to deliver around 10 to 20 basis points of full-year adjusted margin expansion.

AJG boasts an impressive inorganic growth story. The insurance broker closed 13 buyouts year to date and has quite a strong pipeline with about $250 million of revenues, associated with about 40 term sheets either agreed upon or being prepared. Arthur J. Gallagher estimates M&A capacity at more than $4 billion through the end of 2023.

Strong operational performance has been driving Arthur J. Gallagher’s cash flows. It expects to generate $125 million to $150 million in cash flow in 2022 and more in 2023.

Banking on stable cash flow, Arthur J. Gallagher has increased dividends at a seven-year CAGR (2015-2022) of 4.1%, with dividends currently yielding 1.1%, better than the industry average of 0.9%, making the stock an attractive pick for yield-seeking investors. AJG also has a $ 1 billion share buyback program under its authorization.

Stocks to Consider

Some better-ranked stocks from the insurance industry are W.R. Berkley Corporation WRB, American Financial Group, Inc. AFG and ProAssurance Corporation PRA, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 29.95%. In the past year, W.R. Berkley stock has increased 33%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings per share indicates year-over-year increases of 50.6% and 10.4%, respectively.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.09%. In the past year, American Financial has lost 1.7%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 2.2% and 3.3% north, respectively, in the past seven days.

The bottom line of ProAssurance surpassed earnings estimates in three of the last four quarters and missed in one, the average being 150.9%. In the past year, the insurer has lost 4.4%.

The Zacks Consensus Estimate for ProAssurance’s 2022 and 2023 earnings has moved 16.9% and 13.9% north, respectively, in the past seven days.


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