On Aug 17, we issued an updated research report on Arthur J Gallagher & Co . AJG .
In the recently reported second quarter, Arthur J Gallagher delivered operating earnings of 94 cents per share, missing the Zacks Consensus Estimate by a penny. However, the bottom line improved 17.5% on higher revenues. With respect to its past performance, this Zacks Rank #3 (Hold) insurance broker delivered positive earnings surprises in two of the last four quarters, with an average beat of 2.7%.
Arthur J. Gallagher boasts impressive growth driven by both organic sales, and acquisition and mergers. Last quarter, the company announced 13 acquisitions (mostly within the Brokerage segment) with annualized revenues of approximately $90 million.
Arthur J. Gallagher has also accelerated its acquisitions in the retail employee benefits brokerage and wholesale brokerage areas.
Arthur J. Gallagher's revenues are geographically diversified, with both domestic and international operations. The company expects international revenue contribution to the top line to increase year over year in 2015 given the number and size of the non-U.S. acquisitions. Moreover, loss of clients or weakening of macro conditions in any particular country would not have a severe impact on the top line.
Solid operational performance helps the company to generate cash flows which it uses to enhance its shareholders' wealth.
However, increasing expenses due to higher compensation and operating expenses are eating into the margins. Also, Arthur J. Gallagher estimates integration costs of about 7 cents to 8 cents per share in the third and fourth quarters of 2015. Foreign currency translations have been weighing on the company's earnings, which might be impacted by about 2-3 cents per share in the third quarter and 1 cent in the fourth quarter.
Given the mixed second-quarter performance, the Zacks Consensus Estimate moved south for 2015 and 2016 in the last 30 days respectively by 1.1% (as 5 of 11 estimates moved south) to $2.61 and 2.4% (as 7 of 11 estimates moved south) to $2.93. The expected long-term growth rate for the stock is 10.6%.
Other Stocks to Consider
Some better-ranked insurers are eHealth, Inc. EHTH , First American Financial Corporation FAF and Hallmark Financial Services Inc. HALL . While First American Financial and Hallmark Financial sport a Zacks Rank #1 (Strong Buy), eHealth carries a Zacks Rank #2 (Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.