Arthur J. Gallagher's Buyout To Fortify Water Utility Insurance

Arthur J. Gallagher & Co. (NYSE:AJG) recently purchased AquaSurance, LLC, which is expected to strengthen the acquirer’s portfolio in providing insurance services to its existing Texas water utility business. However, financial details of the transaction remain undisclosed.

Details of the Transaction

Established in 2002, Houston, TX-based AquaSurance operates as a property/casualty broker. The company primarily focuses on serving Texas water utilities. Post takeover, it will shift base to Arthur J. Gallagher's Houston Galleria office.

The latest buyout is expected to strengthen the already robust inorganic growth portfolio of the acquirer. Also, AquaSurance’s emphasis on catering to the particular needs of water utilities is anticipated to be highly value accretive to Arthur J. Gallagher’s portfolio that serves Texas water utility business. With this buyout, the insurance broker will not only be able to improve its public entity practice but also grow its existing water utility business in the South Central region of the United States.

Riding High on Acquisitions

Over the past few years, Arthur J. Gallagher’s impressive growth has been mainly fueled by organic sales as well as prudent acquisitions and mergers. The insurance broker has closed 27 acquisitions with annualized revenues of over $129.7 million in the first nine months of 2017. In addition, the company has put in substantial efforts to further accelerate its acquisition activity in the retail employee benefits brokerage and wholesale brokerage areas. Arthur J. Gallagher’s merger and acquisition pipeline remains strong with about $250 million of revenues.

Such strategic initiatives will improve the company’s top line, resulting in its overall growth. Additionally, the company’s brokerage segment has been witnessing excellent results over a considerable period of time. The insurance broker expects better organic growth for this segment in 2018 than it recorded in 2017. Therefore, Arthur J. Gallagher’s stellar growth graph continues to impress investors.

Zacks Rank and Share Price Movement

Arthur J. Gallagher holds a Zacks Rank #2 (Buy). Shares of the company have gained 21% in a year’s time, outperforming the industry’s rally of 18.5%. We expect top-line growth, prudent acquisitions and a strong capital position to drive the shares higher in the near term.

The insurance broker is set to report fourth-quarter results on Jan 25. However, our proven model does not conclusively show that the stock is likely to beat on earnings this season. This is because although the bullish Zacks Rank of 2 increases the predictive power of ESP, the company’s Earnings ESP of -0.45% leaves the conclusion inconclusive.

Other Stocks to Consider

Investors also interested in other top-ranked stocks from the insurance industry might consider Radian Group Inc. (NYSE:RDN) , MetLife, Inc. (NYSE:MET) and Prudential Financial, Inc. (NYSE:PRU) , each being a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

MetLife offers life insurance, annuities, employee benefits and asset management products in the United States, Japan, Latin America, Asia, Europe and the Middle East. The company came up with positive surprises in all of the last four quarters with an average beat of 9.60%.

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

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