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Arthur J Gallagher Poised for Organic and Inorganic Growth

On Sep 16, 2015, we issued an updated research report on Arthur J Gallagher & Co.AJG .

Arthur J. Gallagher evolved from a small retail presence in Australia, Canada and New Zealand to become one of the top five brokers. The insurance broker remains focused on tapping opportunities in the U.K., Australia, New Zealand, Canada and the U.S.

Arthur J. Gallagher boasts impressive growth driven by both organic sales, and acquisition and mergers. The first half of 2015 witnessed 24 acquisitions with $120 million in revenues. The company continues to consider prudent acquisitions.

Though most of the acquisitions are within the brokerage segment the company has lately accelerated its buyouts in the retail employee benefits brokerage and wholesale brokerage areas which are fuelling top-line growth. The company also boasts positive organic growth for 18 straight quarters in both brokerage and risk management segments.

Arthur J. Gallagher's revenues are geographically diversified. While domestic revenues account for 65%, the remaining comes from international operations. However, insurance brokers expect international revenue contribution to total revenue to increase year over year in 2015 given the number and size of the non-U.S. acquisitions.

Strong operational performance has been aiding Arthur J. Gallagher to generate substantial cash flows for a solid capital and liquidity position. This in turn has been enabling the company to undertake shareholder friendly moves.

Nonetheless, escalating expenses that put pressure on margin expansion, higher integration costs, unfavorable foreign currency translation and a high debt level keep us watchful.

In the last reported quarter, Arthur J Gallagher delivered operating net earnings that missed the Zacks Consensus Estimate but improved year over year on top-line growth. With respect to the surprise trend, this Zacks Rank #3 (Hold) investment manager delivered positive surprises in the two of last four quarters, with an average of 2.7%.

A mixed second-quarter performance led the Zacks Consensus Estimate to move south as most of the estimates were lowered in the last 60 days.The same moved down 1.5% to $2.60 for 2015 and 3% to $2.91 for 2016.

Stocks to Consider

Some better-ranked insurers are Assured Guaranty Ltd. AGO , Old Republic International Corporation ORI and MGIC Investment Corp. MTG . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

MGIC INVSTMT CP (MTG): Free Stock Analysis Report

GALLAGHER ARTHU (AJG): Free Stock Analysis Report

ASSURED GUARNTY (AGO): Free Stock Analysis Report

OLD REP INTL (ORI): Free Stock Analysis Report

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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 Nasdaq, Inc.


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

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