Willis Towers Poised To Benefit From Merger Synergies

On Aug 22, we issued an updated research report on Willis Towers Watson plc (NASDAQ:WLTW) .

Willis Towers’ bottom line in the second quarter of 2016 beat the Zacks Consensus Estimate declined 1.2% year over year. With respect to surprise, the Zacks Rank #3 (Hold) insurance broker surpassed expectations in two of the last four quarters but the four-quarter average was a miss of 3.57%.

The Zacks Consensus Estimate moved down as most of the estimates were revised lower in the last 30 days. The same declined 2% to $7.72 for 2016 and 2.6% to $8.50 for 2017.

Counting on the positives, Willis Towers is well positioned to penetrate deeper into markets, expand its international presence and work for further innovation. The company estimated cost synergies of $100 million to $125 million and tax savings of approximately $75 million annually by 2018.

With a view to strengthen the services offered, realize the operational opportunities as well as make new investment in growth initiatives Willis Towers had announced the Operational Improvement Program in Apr 2014.. This program will help the company meet its 25% adjusted EBITDA margin goal by 2018. Also, the company sees $325 million in annual cost savings by the end of 2017.

Willis Towers has also been strengthening its financial flexibility and balance sheet. It has been lowering its debt level and thereby improving its leverage position. Also, the company engages in shareholder-friendly moves and targets repurchasing $200 million worth shares in the remainder of the year.

However, Willis Towers' operating expenses have been rising over the last several quarters, thereby putting pressure on margins. With respect to merger and integration related costs, the company expects to incur about $150–$175 million in 2016. Also, in order to implement the Operational Improvement Program, the company is expected to incur restructuring costs totaling $440 million in 2014–2017. We believe that the company’s operating margin might suffer if it does not take measures to increase total revenue at a rate higher than the rise in expense.

Stocks to Consider

Some better-ranked financial stocks are Erie Indemnity Company (NASDAQ:ERIE) , Health Insurance Innovations, Inc. (NASDAQ:HIIQ) and Genworth Financial, Inc. (NYSE:GNW) . While Health Insurance Innovations sports a Zacks Rank #1 (Strong Buy), Erie Indemnity and Genworth Financial carry a Zacks Rank #2 (Buy).

ERIE INDEMNITY (ERIE): Free Stock Analysis Report

GENWORTH FINL (GNW): Free Stock Analysis Report

HEALTH INS INN (HIIQ): Free Stock Analysis Report

WILLIS TWRS WAT (WLTW): Free Stock Analysis Report

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