A month has gone by since the las t earnings report for Willis Towers Watson (WLTW). Shares have added about 4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Willis Towers Watson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recen t earnings report in order to get a better handle on the important catalysts.
Willis Towers Misses on Q4 Earnings, Revenues Up Y/Y
Willis Towers Watson Public Limited Company delivered fourth-quarter 2018 adjusted earnings of $4.00 per share, missing the Zacks Consensus Estimate of $4.06. The bottom line surged 81% year over year.
The quarter witnessed strong top-line growth, margin expansion and sturdy cash flow.
Willis Towers Watson posted adjusted consolidated revenues of $2.4 billion, up 14.1% year over year, on a reported basis. The metric grew 5% on organic basis. The top line missed the Zacks Consensus Estimate by 0.2%.
Total cost of providing services decreased 4.8% year over year to $1.9 billion.
Adjusted EBITDA was $774 million. Adjusted EBITDA margin was 32.6%.
Full year Highlights
Operating income was $9.73 per share on revenues of $8.5 billion.
Revenues increased 4% on a reported basis. Organic growth was 5%.
Adjusted EBITDA was $2 billion and adjusted EBITDA margin was 23.9%.
Quarterly Segment Update
Human Capital & Benefits : Total revenues of $843 million were up 10% year over year. Operating margin was 30%.
Corporate Risk & Broking : Total revenues of $816 million improved 3% year over year. Operating margin was 29% in the quarter under review.
Investment, Risk & Reinsurance : Total revenues of $280 million declined 3% from the prior-year quarter. Operating margin was 2%.
Benefits Delivery & Administration : Total revenues of $390 million surged 101% year over year. Operating margin was 61%.
Cash and cash equivalents increased 0.3% from the 2017-end level to about $1 billion.
Long-term debt increased 1.4% from 2017 end to nearly $4.4 billion at 2018-end.
Shareholders' equity dipped 2.7% from the level on Dec 31, 2017 to $909 billion as of Dec 31, 2018.
For 2018, cash from operations improved 49% year over year to $1.3 billion. For 2018, free cash flow was $1 billion, up 81% year over year.
The company bought back shares worth $602 million in 2018.
Willis Towers estimates about 4% organic revenue growth. Adjusted operating margin should hover around 20%.
Adjusted earnings are projected in the range of $10.60-$10.85 per share, whose mid-point of $10.73 is below the current Zacks Consensus Estimate of $10.98 for 2019. Forex is estimated to drag down the bottom line by 10 cents.
Free cash flow is expected to grow at least 15%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Willis Towers Watson has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Willis Towers Watson has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.