Willis Towers: Growth Prospects Bright, Expenses On The Rise

On May 25, 2016, we issued an updated research report on Willis Towers Watson Public Limited Company (NASDAQ:WLTW) .

The insurance broker’s first-quarter 2016 earnings beat the Zacks Consensus Estimate but deteriorated year over year on higher expenses. However, the company witnessed an increase in revenues owing to higher commissions.

Willis Towers, which was formed by the merger of Willis Group and Towers Watson on Jan 2016, makes use of strategic opportunities to ramp up its inorganic growth profile. The combined entity will leverage from the strengths of the both the companies to penetrate deeper into markets, expand international presence and work on further innovation.

The merger is expected to generate revenues, cost and tax synergies. The company projected cost synergies of $100–$125 million and tax savings of approximately $75 million annually by 2018. Of these, $20 million in cost synergies is targeted for 2016, with about $30 million annually till 2018. Moreover, the company expects to exceed $75 million in annual tax savings.

Willis Towers’ Operational Improvement Program, which was announced in Apr 2014, is on track to realize its 25% adjusted EBITDA margin goal by 2018. Also, the company targets $325 million of annual cost savings by the end of 2017.

Willis Towers remain focused on improving its liquidity while maintaining a solid balance sheet. Though the company has already issued $1 billion senior notes this March, it intends to go to the Euro market for additional funds worth $600–$800 million. To that end, the company has offered $540 million 2.125% senior notes with maturity scheduled in 2022.

However, rising operating expenses continue to weigh on the operating margin of the company. Further, with respect to merger and integration-related costs, the company anticipates to incur about $150–$175 million in 2016. Also, interest burden is estimated to be about $200 million in 2016.

In addition, the company has been undertaking a number of acquisitions to ramp up its inorganic growth profile. Thus, lower-than-expected earnings accretion from the acquisitions might weigh on overall results.

Zacks Rank and Stocks to Consider

Currently, Willis Tower carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the insurance industry are Hannover Rück SE (OTC:HVRRY) , Marsh & McLennan Companies, Inc. (NYSE:MMC) and Markel Corp. (NYSE:MKL) . While both Hannover Rück and Marsh & McLennan hold a Zacks Rank #2 (Buy), Markel Corp. sports a Zacks Rank #1 (Strong Buy).

MARSH &MCLENNAN (MMC): Free Stock Analysis Report

HANNOVER RUECKV (HVRRY): Free Stock Analysis Report

MARKEL CORP (MKL): Free Stock Analysis Report

WILLIS TWRS WAT (WLTW): Free Stock Analysis Report

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