Can Arthur J. Gallagher (AJG) Keep Growing On Acquisitions?

Arthur J. Gallagher & Co. (NYSE:AJG) remains on the growth track supported by its strategic acquisition and mergers. Notably, the company evolved from a small retail presence in Australia, Canada and New Zealand to one of the top five brokers globally.

Arthur J. Gallagher made 28 acquisitions since January through October this year with annualized revenues of $97.4 million. In November, the insurance broker acquired London-based Argentis, Altman & Cronin Benefit Consultants in the U.S., and Michigan-based Regency Group.

Arthur J. Gallagher has also accelerated its acquisition activity in the retail employee benefits brokerage and wholesale brokerage space. The company intends to pursue smaller tuck-in mergers in 2017. These acquisitions have not only expanded the company’s global footprint but also added capabilities to its suit of products and services.

Strategic buyouts, along with organic initiatives, have been fueling top-line growth for years, increasing at a four-year CAGR of 26% in 2015.

Shares of Arthur J. Gallagher have increased 1.21% in the last one month compared with the Zacks categorized Insurance Broker industry’s 3.54%. The estimates have also moved down in the last few weeks. Nonetheless, we believe that the above-mentioned growth drivers will help the stock to turn around.

Also, this Zacks Rank #3 (Hold) insurer has delivered positive surprise in the last four quarters with an average beat of 6.3%. The long-term expected earnings growth is pegged at 9%. Price earnings growth ratio, which determines the relative trade-off between the price of a stock, the earnings generated per share, and the company's expected growth, is 1.99. This is above the industry average of 1.67. The company has seen its 2016 estimates moving north by more than 1% over the last 60 days.

Stocks to Consider

Some better-ranked insurers that warrant a look include Alleghany Corporation (NYSE:Y) , Arch Capital Group Ltd. (NASDAQ:ACGL) and First American Financial Corporation (NYSE:FAF) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation, which is engages in P&C reinsurance and insurance businesses in the U.S. and internationally, beat estimates in three of the last four quarters with an average positive surprise of 20.52%.

Arch Capital, a provider of property, casualty, and mortgage insurance and reinsurance products worldwide surpassed estimates in the last four quarters with an average positive surprise of 9.27%.

First American Financial, a provider of financial services, surpassed estimates in the last four quarters with an average positive surprise of 14.32%.

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