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Marsh & McLennan on Growth Path Via Buyouts and Cost Cut

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On Sep 10, we updated our research report on Marsh & McLennan Companies, Inc.MMC .

Marsh & McLennan's strategic acquisitions and well-executed restructuring initiatives added clients, triggering growth. Since 2009 till 2014 end, the company made 85 acquisitions and investment transactions totaling approximately $3 billion. Some of the recent acquisitions made by the company include Tequesta Insurance Advisors, Cline Wood Agency, Vézina and J.W. Terrill. The company is also due to close the acquisition of Dovetail Insurance by the third quarter.

With the view to expand business globally, the company has extended its coverage to the Asia Pacific, Africa and Latin America, thereby substantially contributing to top-line growth and insurance margins.

Marsh & McLennan remains focused on cost reduction and expense management. Over the last couple of years, the company implemented cost-saving initiatives by divesting redundant units and by moderating its expenses on compensation and benefits, and other operations. These have helped the company to enhance organic growth and operating leverage, deliver cost efficiency and boost its operating income.

Marsh & McLennan is focused on returning more value to its shareholders via repurchase of shares. To that end, the company deployed $300 million to buy back shares in the first quarter and has $1 billion worth shares remaining under its authorization. With a strong balance sheet and the ability to generate a healthy cash flow, the company is expected to indulge in more buybacks, going forward.

However, Marsh & McLennan has faced several lawsuits over the years. Lawsuits and related settlement charges not only affect a company's financials but also hamper its goodwill, thereby leading to increased expenses and hence, contraction of margins. Moreover, these lawsuits affect new production and customer retention initiatives. Marsh & McLennan has not being able to exempt itself from these ills.

Stiff competition and pricing pressure have also thwarted the new business production of the company. A consistent fall in asset management fees in alternative investments due to the change in demand-supply dynamics in the market has weakened its primary revenue source and competitiveness.

Additionally, international operations account for nearly 60% of Marsh & McLennan's non-U.S. pre-tax income which raises caution on account of currency fluctuations.

Currently, Marsh & McLennan carries a Zacks Rank #3 (Hold). Some better-ranked players are First American Financial Corporation FAF , NMI Holdings, Inc. NMIH and Selective Insurance Group Inc. SIGI . All these stocks sport a Zacks Rank #1 (Strong Buy).

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MARSH &MCLENNAN (MMC): Free Stock Analysis Report

FIRST AMER FINL (FAF): Free Stock Analysis Report

SELECT INS GRP (SIGI): Free Stock Analysis Report

NMI HOLDINGS-A (NMIH): 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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