Arthur J. Gallagher (AJG) Looks Promising: Time To Add?

Arthur J. Gallagher & Co. (NYSE:AJG) remains well-poised on strategic acquisitions as well as organic growth initiatives. This Zacks Rank #2 (Buy) insurance broker bears immense potential owing to a few good growth drivers.

Northbound Estimates: The stock has seen the Zacks Consensus Estimate for both current and the next-year earnings being revised 1 cent upward over the last 60 days.

Growth Projections: The Zacks Consensus Estimate for earnings per share is pegged at $2.99 on revenues of $6.05 billion. While the top line improves 8.2% year over year, the bottom line rises 9%.

For 2018, the consensus mark for earnings stands at $3.31 per share on revenues of $6.43 billion, reflecting a year-over-year increase of 10.7% and 6.3%, respectively.

Arthur J. Gallagher has expected long-term earnings per share growth of 9.9%.

An Outperformer: Shares of Arthur J. Gallagher have rallied 21.7% year to date, outperforming the industry’s growth of 17.8%. The shares have also outperformed the S&P 500 index’s increase of 20.2% over the same time frame.

Positive Earnings Surprise History: Arthur J. Gallagher has surpassed the Zacks Consensus Estimate in the last three quarters with an average beat of 1.85%.

Attractive Valuation: Looking at the company’s price-to-book ratio — the best multiple for valuing insurance brokers because of large variations in their earnings results from one quarter to the next — shares are currently underpriced. The company has a trailing 12-month P/B ratio of 2.74, falling significantly below the industry average of 4.26. Undervalued shares with growth prospects are best investment bets. The stock carries a Growth Score of B

Growth Drivers in Place

Arthur J. Gallagher boasts impressive growth, driven by organic sales as well as acquisition and mergers.

The company’s revenues are geographically diversified with strong domestic and international operations. It expects an increase in international contribution (accounts for 35% to the top line) to total revenues, given the number and size of the non-U.S. acquisitions.

The insurer has witnessed positive organic growth for the past 23 straight quarters in both its brokerage and risk management segments. Arthur J. Gallagher projects organic growth at around 2% in the fourth quarter for the risk management segment. The insurance broker estimates risk management margins to range between 16% and 17.5% in the fourth quarter, which might lead to achieving the full-year target margin of over 17%.

Strong operational efficiency will continue to lend Arthur J. Gallagher the much-needed push to generate solid cash flows.

Riding high on a sustained solid operational performance, the company boasts a robust capital position. Arthur J. Gallagher effectively deploys capital. While dividend increased at a six-year CAGR of 2.9%, the company now has 7.7 million shares remaining under its repurchase authorization.

Other Stocks to Consider

Investors also interested in other stocks worth considering from the insurance industry may check out Cigna Corp. (NYSE:CI) , Radian Group Inc. (NYSE:RDN) and Prudential Financial, Inc. (NYSE:PRU) , each holding a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cigna is one of the largest investor-owned health service organizations in the United States. The company delivered positive surprises in all the last four quarters with an average beat of 14.56%.

Radian Group offers mortgage and real estate products and services in the United States. The company pulled off positive surprises in three of the last four quarters with an average beat of 4.52%.

Prudential Financial provides insurance, investment management and other financial products and services in the United States as well as internationally. The company came up with positive surprises in three of the last four quarters with an average beat of 0.16%.

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