Brown & Brown, Inc.BRO has been saddling with escalating expenses for the past few years and the company does not expect any relief on this front any time soon. Higher compensation and operating expenses are primarily responsible for this. This upward curve in expenditure has restricted margin expansion over a considerable period of time which is why the company should strive to ensure that the increase in total revenue outpaces such rise in expenses.
Brown & Brown expects earnings before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables (EBITDAC) margin to contract for the next few quarters, due to additional investments made.
Shares of Brown & Brown have gained 17.66% in the last one year, underperforming the Zacks categorized Insurance Brokerage industry's increase of 18.29%. Also the company has not witnessed any earnings momentum for its 2017 and 2018 estimates over the last 60 days.
Additionally, for 2017, the company projects margins to be about 300-350 basis points below 2016, owing to lower revenues in 2017 and the premium tax credits obtained during 2016 that won't recur in 2017.
Further, the Zacks Rank #4 (Sell) insurance broker has been battling against a higher debt level over the past few years which in turn has risen interest expenses over time, thus leading to a margin contraction. However, the company expects to see a lower debt level in the near term.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Assurant, Inc. AIZ , Cigna Corporation CI and Old Republic International Corporation ORI . Each stock holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Assurant offers risk management solutions for housing and lifestyle markets worldwide. The company has delivered positive surprises in three of the last four quarters with an average beat of 6.82%.
Cigna provides insurance plus related products and services in the United States and internationally. The company has delivered positive surprises in three of the last four quarters with an average beat of 1.35%.
Old Republic deals in insurance underwriting and related services business, primarily in the U.S. and Canada. The company has delivered positive surprises in two of the last four quarters with an average beat of 12.71%.
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