On Aug 17, we issued an updated research report on Willis Group Holdings plcWSH .
Willis Group delivered operating earnings of 57 cents per share in the second quarter, outperforming the Zacks Consensus Estimate by 5.6% and improving 39% year over year. The outperformance came on the back of mid single-digit growth in revenues, efficient cost management and the Operational Improvement Program. With respect to its performance, this Zacks Rank #3 (Hold) insurance broker delivered positive earnings surprises in two of the last four quarters.
Willis Group has an impressive inorganic story with strategic acquisitions spreading its geographical footprint. Exiting the second quarter, the insurance broker agreed to buyout a 50.1% stake in Towers Watson TW . The merger will leverage Willis' presence in the $10-billion-plus U.S. property and casualty corporate market and widen Towers Watson's exposure to more than 80 countries, besides resulting in $100-$125 million in cost savings to be fully realized within three years of closing.
Its recent endeavors also include acquiring Elite Risk Services Limited of Taiwan that nearly doubles its Taiwanese operations, inking a deal to buy PMI Health Group in an attempt to bolster its health care advisory business in the U.K. and purchasing a 49% stake in a leading Indian insurance broker, Almondz Insurance Brokers Private Limited. The company also acquired the remaining 70% of Gras Savoye stake from its Associates line, among others.
With the view to strengthen the clients' services offered, realize operational opportunities and make new investment in the growth initiatives, Willis Group announced the Operational Improvement Program in Apr 2014. The cumulative cost savings are now estimated at $490 million through the end of the program. A lower level of costs will in turn help in margin expansion.
However, the company is expected in incur restructuring costs totaling $440 million in 2014-2017.Higher expenses have been eating into margins. In addition, a soft interest rate environment is weighing on investment results.
The Zacks Consensus Estimate is currently pegged at $2.53 for 2015 and $2.93 for 2016. These translate into year-over-year growth of 8.5% for this and 15.8% for the next. The expected long-term growth rate for the stock is 9.7%.
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