On Dec 16, 2015, we issued an updated research report on Brown & Brown Inc. BRO.
Brown & Brown remains well positioned to generate improved revenues on the back of its strategic mergers and acquisitions, and organic measures. However, due to the termination of some associated health plans, the company expects fourth-quarter revenues to be affected by $1 million, the impact trickling further down to margins, which are anticipated to deteriorate by about 20 basis points.
Brown & Brown prudently deploys its capital that in turn increases shareholder value. The effective capital deployment is fueled by the company’s sustained solid operational strength. Brown & Brown is executing the $75 million accelerated share repurchase program. The company has $450 million remaining under its authorization. Moreover, the recent dividend hike marked the 22nd annual dividend hike by the insurance broker.
However, the insurance broker has been witnessing increasing expenses that have been eroding its margin. The company further expects income before interest, income taxes, depreciation, amortization and the change in estimated acquisition earn-out payables or EBITDAC margin to contract in the next few quarters due to additional investments.
Also, a higher level of debt is leading to an increase in interest expense which in turn is weighing on margin expansion.
With respect to third-quarter results, earnings per share were in line with the Zacks Consensus Estimate and the year-ago earnings.
The Zacks Consensus Estimate is currently pegged at $1.66 for 2015 and $1.81 for 2016. These translate into year-over-year improvement of 14.3% and 9.2%, respectively. The expected long-term earnings growth rate is currently pegged at 7.5%.
Other Stocks to Consider
Brown & Brown presently carries a Zacks Rank #3 (Hold). Some better-ranked insurance brokers are eHealth Inc. EHTH, Blue Capital Reinsurance Holdings Ltd. BCRH and Validus Holdings, Ltd VR. Each of these stocks carries a Zacks Rank #2 (Buy).
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