Why Should You Retain Arthur J. Gallagher (AJG) In Portfolio?

Arthur J. Gallagher & Co. (NYSE:AJG) boasts impressive growth via organic sales as well as mergers and acquisitions (M&A). The company remains focused on tapping opportunities in the U.K., Australia, New Zealand, Canada and the U.S. and intends to pursue smaller tuck-in mergers in 2017. The company’s M&A pipeline remains strong with about $350 million of revenues. In fact, the company has witnessed positive organic growth for 22 straight quarters.

However, the company expects impact from forex of about $20 million in the second quarter due to its operations across the globe. Nonetheless, the insurance broker will not experience a significant impact of forex in the second half 2017. The company’s International business accounts for 35% of its top line.

Arthur J. Gallagher aggressively pursues strategic acquisitions. To date, the company made four acquisitions in the second quarter. The company expects integration cost of about 1 cent per quarter or 4 cents per share in 2017.

Also, the company’s dividend yield of 2.77% is above the industry average of 1.38%. This makes the insurer an attractive pick for yield-seeking investors. The company now has 7.7 million shares remaining under its repurchase authorization.

The Zacks Rank #3 (Hold) insurance broker beat expectations in three of the last four quarters with an average positive surprise of 1.23%. The company has witnessed estimates moving north over the last 30 days.

Valuation remains attractive on a price to earnings as well as on a price to book basis. The P/E ratio is 18.9, a discount of 0.5% to the industry average. Also, price to book multiple of 2.7 is 25% lower than industry average of 3.6.

Shares of Arthur J. Gallagher gained about 9.12% year to date. Though the company’s shares underperformed the Zacks categorized Insurance Broker industry growth of 10.19%, we believe that solid organic and inorganic background, strong balance sheet and effective capital deployment bodes well for long-term growth and should drive the stock higher. The expected long-term earnings growth rate is currently pegged at 9.3%.

Stocks to Consider

Some better-ranked stocks from the insurance industry are eHealth, Inc. (NASDAQ:EHTH) , American Financial Group, Inc. (NYSE:AFG) and ProAssurance Corporation (NYSE:PRA) .

eHealth provides private online health insurance services in the United States and China. The company posted a positive earnings surprise of 596.15% in the last reported quarter. The stock flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Financial Group engages primarily in property and casualty (P&C) insurance with focus on specialized commercial products for businesses. The company posted a positive earnings surprise of 23.36% in the last reported quarter. The stock sports a Zacks Rank #1.

ProAssurance provides P&C insurance, and reinsurance products in the United States. The company posted a positive earnings surprise of 12.72% in the last reported quarter. The stock carries a Zacks Rank #2.

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