We are downgrading
Willis Group Holdings plc
) to Underperform from Neutral on the back of weak performance in
the third quarter. Operating earnings in the quarter fell short
of the Zacks Consensus Estimate as well as the year-ago
results. Lower revenue coupled with higher expenses weighed
on the performance. Top line also missed the expectation and was
lower than the year-ago numbers due to lower commissions and fees
and lower investment income.
The company has been experiencing a decline in investment income
over the past few years, a trend that continues into the third
quarter, due to lower average interest rates. We expect
investment income to remain under pressure in the near term as
interest rates have continued to experience sharp declines across
The Loan Protector business acquired through the Hilb Rogal and
Hobbs purchase has been experiencing a revenue dip since the
second quarter of 2011 due to client loss through attrition and
merger and acquisition activity, tightened commission and drag in
foreclosure. Willis, therefore, expected weak performance at the
Loan Protector business to adversely affect the North America
segment, continuing even into 2012.
However, these negatives are somewhat offset by organic growth in
commissions and fees driven by better performances in Global
operations and International operations. Alongside, Willis opts
for strategic acquisitions, which continue to aid its
performances and help it write more business going forward,
thereby aiding top-line growth.
Willis also remains focused on enhancing shareholders wealth. Its
dividend yield of 3.19% is much superior than the industry yield
of 1.77% as well as that of its nearest peer,
), with a dividend yield of 1.12% and
Marsh & McLennan Companies Inc.
), with a yield of 2.66%. Also, with shares repurchased in
the third quarter, the company exhausted its authorization.
Willis currently carries a Zacks #3 Rank, translating into a
short-term Hold rating.
Arthur J Gallagher &Co.
), another competitor, and Marsh & McLennan, share the same
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