Here's Why Arthur J. Gallagher Stock Is An Attractive Bet

Arthur J. Gallagher & Co. (NYSE:AJG) is well-poised for growth, given its strategic acquisitions, strong segmental performance and prudent capital deployment.

Estimates for Arthur J. Gallagher have been revised upward over the past 60 and seven days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for earnings for 2020 have moved north by 0.7% over the past 60 days and the same for 2021 earnings has moved north by 0.4% over the past seven days.

The company also has a decent history of beating estimates in each of the last four quarters with the average beat being 4.12%.

Arthur J. Gallagher’s revenues are geographically diversified with strong domestic and international operations. A number of strategic acquisitions have boosted its capabilities and diversified operations. In 2019, the company closed 49 mergers with more than $468 million of annualized revenues. These buyouts provide the company with incremental capabilities and services to assist clients across Australia, the UK, Europe and the United States.

The company’s Brokerage segment has contributed a major portion of the company’s revenues consistently. This segment accounted for 61% and 68% of Arthur J. Gallagher’s total revenues in 2018 and 2019, respectively. Also, the segment’s organic growth witnessed a rise of 5.8% year over year in 2019 and continues to drive the company’s top line. Currently riding on strong demand for claim settlement and administration services, its Risk Management segment also contributed 14% to the company’s top-line growth over the past two years.

Arthur J. Gallagher’s sound capital and liquidity position aid in efficient capital deployment. In the first quarter of 2020, the dividend was increased by nearly 4.6%, reflecting a five-year (2014-2019) CAGR of 3.62%. Its dividend yield of 2.5% betters the industry average of 1.8%. The company has 25 million shares remaining under its buyback authorization.

The Zacks Consensus Estimate for 2020 and 2021 earnings per share is pegged at $4.16 and $4.69, indicating increase of nearly 13.9% and 12.7%, respectively from the year-ago reported figure. The expected long-term earnings growth rate is 9.8%. It has a favorable Growth Score of B. This style score identifies growth prospects of a company.

Shares of this Zacks Rank #2 (Buy) insurance broker have lost 8.9% in the past year, compared with the industry’s decline of 9.5%.

However, some factors that pose threat include escalating expenses due to higher compensation and operating expenses, which weigh on margin expansion. Also, a high debt ratio and low interest serving capability raise financial risk.

Other Stocks to Consider

Some other top-ranked stocks from the insurance broker industry are eHealth, Inc. (NASDAQ:EHTH) , Brown & Brown, Inc. (NYSE:BRO) and Aon plc (NYSE:AON) . While eHealth sports a Zacks Rank #1(Strong Buy), Brown & Brown and Aon plc carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

eHealth and Brown & Brown surpassed estimates in each of the last four quarters, with the average positive surprise being 182.77% and 7.97%, respectively.

Aon surpassed estimates in three of the last four quarters, with the average positive surprise being 0.62%.

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