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AJG Strengthens US Presence with Foundation Strategies Buy - Analyst Blog

By: Zacks.com
Posted: 7/22/2014 7:32:00 PM
Referenced Stocks: AJG;AON;BRO;VR

Arthur J. Gallagher & Co. ( AJG ) announced acquisition of Foundation Strategies, Inc., thereby giving a boost to its inorganic growth story. However, the terms of the transaction remain undisclosed.

Texas based Foundation Strategies, an employee benefits broker and consultant specializes in overall implementation of employee benefits plans and insurance management service. Arthur J. Gallagher's employee benefits operations in the south central region stand to gain from addition of Foundation Strategies in its portfolio.

Arthur J. Gallagher & Co. is well known for pursuing acquisitions that help in expanding its business. While the latest acquisition marks the first one in the present quarter, the company had made ten acquisitions in second-quarter 2014. It compares favorably with nine acquisitions made in the first quarter with annual revenue of $17.8 million.

Notably, Arthur J. Gallagher & Co.'s strong cash position as well as solid retained earnings cushions its acquisitions, thereby resulting in steady earnings generation.

Arthur J. Gallagher & Co. is scheduled to report second-quarter 2014 earnings on Jul 29, 2014. The Zacks Consensus Estimate for second quarter is currently pegged at 72 cents on revenues of $964 million. While the top line represents a year over year increase of 38.5%, bottom line translates to an improvement of 4.3%.

With respect to earnings performance, Arthur J. Gallagher & Co. delivered positive earnings surprises in two of last four quarters with trailing four-quarter average surprise of 12.73%. Currently, this insurance broker has a Zacks Rank #3 (Hold), which increases the predictive power of positive surprise. However, when combined with an Earnings ESP of 0.00%, it makes surprise prediction difficult.

Insurance brokers are increasingly resorting to inorganic growth strategies to bolster prospects. Aon US Holdings, Inc., a subsidiary of Aon plc ( AON ) completed its acquisition of StoneRiver National Flood Services, Inc. last week while Brown & Brown Inc . ( BRO ) has taken over Gaston & Associates in mid-June. Last month, another insurance broker, Validus Holdings, Ltd . ( VR ) announced its intention to buy Western World Insurance for $690 million.


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