Arthur J. Gallagher & Co. on a Binge with 4 August Buyouts - Analyst Blog

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Arthur J. Gallagher & Co. ( AJG ) continues with its acquisitions. The insurance broker has announced four acquisitions to date in August.

Acquisitions include certain assets of eastern Caribbean based Minvielle & Chastanet Insurance Brokers (widening presence into Antigua and Dominica), Connecticut based Cowles & Connell (enhancing wholesale geographic footprint and network), Missouri based Trip Mate, Inc. (helping foray into travel insurance market), and Colorado based Denman Consulting Services (augmenting employee benefits operations).

Arthur J. Gallagher & Co. remains focused on international expansion through both acquisitions and organic measures. The company's international operations, primarily in Australia, Bermuda, Canada, the Caribbean, Singapore, New Zealand and the U.K., generated about 30% of its revenues. With this flurry of acquisitions, the number is expected to grow further.


Arthur J. Gallagher & Co.'s growth story looks impressive. While the buyouts widen its geographical footprint, these also support the enhanced portfolio of services, and strengthen its position in retail and wholesale insurance brokerage services and risk management industries.

In the second quarter of 2014, Arthur J. Gallagher & Co. closed 17 acquisitions with annualized revenues totaling $497.1 million. In the ongoing quarter, the insurance broker wrapped up seven acquisitions including the above four and penned a deal for one more.

 Arthur J. Gallagher & Co. expects its clean energy investments to contribute $99-$110 million to this year's net earnings that should in turn support its acquisition strategy. In addition, the company's cash balance - up 3.3 times from 2013 end - and retained earnings of $596.9 million (up 8.7% from 2013 end) bear testimony to its financial health.

Though earnings of Arthur J. Gallagher & Co. in the second quarter missed the Zacks Consensus Estimate and deteriorated from the year-ago earnings due to higher expenses, it has been witnessing upward revisions on strong fundamentals. The Zacks Consensus Estimate moved up as most of the estimates were raised in the last 30 days. It is currently pegged at $2.51 (up 2%) for 2014 and $2.93 (up 1.7%) for 2015. These translate to year-over-year improvement of 24.9% and 16.7% for 2014 and 2015, respectively. The expected long-term earnings growth rate is 14.6%.

With optimism surrounding the acquisitions, we expect analysts to raise their estimates exerting upward pressure on the Zacks Rank. The stock presently carries Zacks Rank #3 (Hold).

As insurance brokers choose the inorganic route for growth, the takeover saga rages the space. This month, Aon plc's ( AON ) global risk management business, Aon Risk Solutions acquired a Lima-Peru based risk and insurance solutions provider, Grana y Asociados. In June, Brown & Brown Inc. ( BRO ) acquired select assets of Gaston & Associates. Also, Marsh Inc., the insurance brokerage wing of Marsh & McLennan Companies Inc. ( MMC ) announced its intention to acquire a major stake in Panama-based Seguros Morrice y Urrutia SA (Semusa) in June.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Stocks

Referenced Stocks: MMC , AON , AJG , BRO

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