Reasons Why Investors Should Retain Arthur J. Gallagher (AJG)

Arthur J. Gallagher & Co. AJG has been favored by investors on the back of its Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities and effective capital deployment.

Growth Projections

The Zacks Consensus Estimate for Arthur J Gallagher’s 2024 earnings per share indicates a year-over-year increase of 14.8% from the consensus estimate of 2023. The consensus estimate for revenues is pegged at $11.37 billion, implying a year-over-year improvement of 14.5% from the consensus mark of 2023.

The consensus estimate for 2025 earnings per share indicates a year-over-year increase of 11.3% from the consensus estimate of 2024. The consensus estimate for 2025 revenues is pinned at $12.45 billion, implying a year-over-year improvement of 9.4% from the consensus mark of 2024.

The expected long-term earnings growth rate is 10.6%, outperforming the industry average of 9.5%.

Zacks Rank & Price Performance

Arthur J. Gallagher currently carries a Zacks Rank #3 (Hold). Over the past year, the stock has gained 14.2% compared with the industry’s growth of 7.6%.

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Earnings Surprise History

AJG surpassed earnings estimates in each of the last four quarters, the average being 1.83%.

Business Tailwinds

Arthur J. Gallagher is on track to generate both organic (particularly international) and inorganic growth. Its focus on tapping opportunities across the globe bodes well for growth. It expects 2024 organic revenues and adjusted EBITDAC margins of the Risk Management and Brokerage segments to be better than the 2023 levels.

In the Brokerage segment, AJG expects organic growth to be 7-9% in 2024. In the Risk Management segment, the company expects organic growth in the 9-11% range and margins around 20% in 2024.

The insurer’s revenues are geographically diversified with strong domestic and international operations. Its international operations contribute about one-third of revenues. The company expects a hike in international contribution to total revenues, given the number and size of the non-U.S. acquisitions.

AJG has an impressive inorganic growth story. This insurance broker acquired 50 entities in 2023, which contributed about $825 million to estimated annualized revenues. It has quite a strong pipeline with about $350 million of revenues, associated with almost 40 term sheets, either agreed upon or being prepared. AJG continues to expect an M&A capacity of $3.5 billion in 2024 without using any equity.

The company’s solid capital position helps it increase payouts to shareholders. Its dividend has witnessed a four-year CAGR of 5.1% and it currently yields at 1.03%. The board of directors also approved a $1.5 billion share buyback program.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Erie Indemnity Company ERIE, Brown and Brown, Inc. BRO and Ryan Specialty Holdings Inc.RYAN, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Erie Indemnity’s 2024 and 2025 earnings implies year-over-year growth of 18.2% and 12.2%, respectively, from the consensus estimate of the corresponding years.

ERIE’s earnings surpassed the Zacks Consensus Estimate in three of the last four quarters and missed in one, the average being 11.24%. Shares of ERIE have surged 61.9% in the past year.

The Zacks Consensus Estimate for Brown and Brown’s 2024 and 2025 earnings implies year-over-year growth of 26.3% and 8.1%, respectively, from the consensus estimate of the corresponding years.

BRO delivered a four-quarter average earnings surprise of 11.19%. Shares of the company have jumped 35.4% in the past year.

The Zacks Consensus Estimate for Ryan Specialty’s 2024 and 2025 earnings implies year-over-year growth of 28.2% and 20.3%, respectively, from the consensus estimate of the corresponding years.

RYAN’s earnings surpassed the Zacks Consensus Estimate in two of the last four quarters and matched in the other two, the average being 5.05%. Its shares have gained 20.3% in the past year.

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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.

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