Brown & Brown (BRO) Up 1.1% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Brown & Brown (BRO). Shares have added about 1.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Brown & Brown Q1 Earnings & Revenues Beat Estimates

Brown & Brown reported first-quarter 2019 earnings of 41 cents per share, beating the Zacks Consensus Estimate by 13.9%. The bottom line improved 24.2% year over year.

The quarter witnessed increased commissions and fees plus net investment income as well as increase in organic revenues. Though expenses increased, net income before interest, income taxes, depreciation, amortization and a change in estimated acquisition earn-out payables (EBITDAC) improved in the quarter.

Behind the Headlines

Adjusted revenues of $619.3 million beat the Zacks Consensus Estimate by 3.8%. Moreover, the top line rose 23.3% year over year, riding on higher commissions and fees plus net investment income. Organic revenues increased 2% in the reported quarter.

Commissions and fees grew 23.4% year over year to $617.5 million.

Investment income surged 83.3% year over year to $1.1 million.

Total expenses increased 22.9% to $470.8 million, driven by a rise in employee compensation and benefits as well as other operating expenses and interest expense.

EBITDAC was $197.1 million, up 25.8% year over year. EBITDAC margin expanded 60 basis points (bps) year over year to 31.8%.

Financial Update

Brown & Brown exited the first quarter of 2019 with cash and cash equivalents of $624.9 million, down 19.6% from 2018-end level.

Long-term debt of $1.4 billion as of Mar 31, 2019 was down 1.2% from 2018 end.

Net cash provided by operating activities in the quarter was $5.4 million, much lower than $79.5 million generated in the year-ago quarter.

Dividend Update

The board of directors announced a regular quarterly cash dividend of 8 cents per share to shareholders of record as of May 8, 2019. The dividend will be paid on May 17.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Brown & Brown has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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 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 has been net zero. Notably, Brown & Brown has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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