Why Hold Strategy is Apt for Arthur J. Gallagher (AJG) Now
Arthur J. Gallagher & Co AJG is poised for long-term growth on the back of a compelling product portfolio and solid capital position. The company has an impressive Growth Score of B. This style score analyzes the growth prospects of a company. Its long-term earnings growth is pegged at 9.6%.
Shares of Arthur J. Gallagher have gained 22.8% year to date compared with the industry’s increase of 31.1% and the Zacks S&P 500 composite’s rise of 17.4%.
The company has a solid earnings surprise history, as it beat estimates in each of the last four quarters with the average being 3.26%.
Arthur J. Gallagher enjoys solid organic as well as inorganic growth, which drives top-line improvement. Revenues, in fact, more than doubled in the last six years. Given sustained solid performance at both its Brokerage and Risk Management segment, the momentum should continue. Management estimates Brokerage segment organic growth in 2019 to be 5% while the same for Risk Management is expected to be more than 5%. The Zacks Consensus Estimate for revenues is pegged at $7.3 billion for 2019 and $7.9 billion for 2020, indicating year-over-year increase of 5.6% and 7.9%, respectively.
The company has an impressive inorganic story with about 24 acquisitions adding approximately $193 million of annualized revenues. Its merger and acquisition pipeline is quite strong with about $400 million of revenues, which is expected to fuel inorganic growth. Strategic acquisitions offer competitive edge by diversifying as well as adding capabilities to its portfolio.
Strong operational performance has been driving Arthur J. Gallagher’s cash flow. The company targets about $1.5 billion of mergers and acquisitions with free cash and debt.
Arthur J. Gallagher’s strong capital and liquidity position support effective capital deployment. This Zacks Rank #3 (Hold) insurance broker has increased its dividend at a five-year CAGR of 3.6%. Its dividend yields 1.9%, better than the industry average of 1.5%. This makes the stock an attractive pick for yield-seeking investors.
The Zacks Consensus Estimate earnings for 2019 and 2020 indicates year-over-year increase of 5.5% and 15%, respectively
Stocks to Consider
Some better-ranked insurance stocks are Amerisafe AMSF, CNA Financial CNA and Cincinnati Financial CINF.
Amerisafe underwrites workers' compensation insurance in the United States. The company delivered a positive surprise of 16.88% in the last reported quarter. The stock sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CNA Financial provides commercial property and casualty insurance products, primarily in the United States. The company came up with a positive surprise of 6.93% in the last reported quarter. The stock carries a Zacks Rank of 2 (Buy).
Cincinnati Financial provides property casualty insurance products in the United States. The company pulled off a positive surprise of 32.81% in the last reported quarter. The stock is a Zacks #2 Ranked stock.
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