On Jun 28, 2016, we issued an updated research report on Willis Towers Watson plc WLTW.
Willis Towers that was formed with the merger of Willis Group and Towers Watson in Jan 2016 is an ace insurance broker will combined strengths to penetrate deeper into markets, expand international presence and work toward further innovation. The merged entity generates revenues, cost and tax synergies. Of these, $20 million in cost synergies is targeted for 2016, with about $30 million expected annually till 2018.
Willis Towers Watson also projects adjusted earnings per share between $7.70 and $7.95 in 2016. Constant currency revenue growth is expected in the low double digits.
Willis Towers’ Operational Improvement Program, which strengthens services offered to clients, realizes operational opportunities as well as makes new investments in growth initiatives, will help the company to meet the 25% adjusted EBITDA margin goal by 2018. Costs savings will be around $150 million in 2016 and about $250 million in 2017. A lower level of costs will aid margin expansion.
The inorganic story also remains compelling with acquisitions expanding the company’s global footprint and diversifying its product portfolio.
A strong capital position, which is aiding the company to engage in shareholder friendly moves, also makes it an attractive pick for yield seeking investors.
However, escalating expenses, which are weighing on margins, remain as concerns. Also, the company has to incur restructuring costs totaling $440 million in 2014–2017 to implement the Operational Improvement Program.
The Zacks Consensus Estimate witnessed a downward revision, moving 0.8% south each for 2016 and 2017. It is currently pegged at $7.86 for 2016 and $8.73 for 2017, translating into a year-over-year increase of 23% and 11%, respectively.
Stocks to Consider
Some better-ranked insurance brokers are Brown & Brown Inc. BRO, Hannover Rück SE HVRRY and Marsh & McLennan Companies, Inc. MMC. Each of these stocks carries a Zacks Rank #2 (Buy).
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