On Mar 22, 2016, we issued an updated research report on Brown & Brown Inc. BRO.
The company’s fourth-quarter 2015 earnings beat the Zacks Consensus Estimate and improved year over year on higher revenues. Higher commissions and fees drove top-line growth.
This Zacks Rank #3 (Hold) insurance broker reported in line earnings in the first three quarters of 2015. However, the average surprise for the trailing four quarters came in at 3.47%. For 2016 and 2017, the company’s earnings are projected to grow 4.3% to $1.79 and 9.6% to $1.96, respectively.
On the fundamental front, Brown & Brown has displayed outstanding organic as well as inorganic growth. In the last reported quarter, the company acquired four agencies with annual revenues of approximately $17 million. This took 2015 tally of acquired agencies to 13, while revenues reached $54 million. Moreover, the total revenue of the company has been increasing at a five-year CAGR of 11.3%.
A robust capital and liquidity position has supported the company’s consistent efforts to enhance shareholder value through dividend increases and share buybacks. In 2015, the company bought back shares worth $175 million and currently has share repurchase authorization of $375 million remaining under the $400 million authorization. With respect to dividends, the company’s five-year average yield is 1.31%, which is much better than the industry average of 0.13%.
However, the company has been witnessing a rise in overall expenses primarily due to its inorganic growth initiatives as well as higher compensation and operating expenses. Moreover, a higher debt level led to an increase in interest expenses over the years, which in turn restricted margin expansion to some extent.
Additionally, exposure to currency exchange rate fluctuations and dependence on limited clients for commission revenues remain headwinds.
Stocks to Consider
Some better-ranked stocks in the same space are Blue Capital Reinsurance Holdings Ltd. BCRH, Hanover Ruck SE HVRRY and Chubb Limited CB. Each of these stocks holds a Zacks Rank #2 (Buy).
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