Yesterday, the board of Marsh & McLennan Companies Inc. (MMC) announced the authorization and approval of its stock repurchase program of $500 million, thereby expanding it to $1.0 billion. However, no time limit has been decided for execution of the plan.
In September last year, the company had sanctioned a $500 million stock buyback plan. Accordingly, Marsh & McLennan repurchased about 7.8 million shares of its common stock for $235 million during the second quarter of 2011.
Overall, under the share buyback program sanctioned last year, the company has repurchased 11.2 million shares for $321 million until the first half of 2011. Meanwhile, Marsh & McLennan has been consistently buying back stock since the last couple of months.
As a leading global broker, Marsh & McLennan has a history of outperforming its peers helped by its size, diverse product offering, global presence, increasing clientele and technical expertise. Despite sluggish organic growth, the company remains a dominant player in its industry by displaying strength in its consulting and brokerage businesses, thereby giving ample competition to arch rival Aon Corp. (AON).
Alongside, Marsh & McLennan’s steady earnings growth continues to support its capital deployment effectively. Additionally, management aims to generate long-term growth by maintaining low capital requirements, create high levels of cash and reduce the company’s risk profile. These factors have also enabled Marsh & McLennan to consistently deploy excess capital through dividend payments and share buyback programs.
Along with the share repurchase program in September last year, Marsh & McLennan had also appreciated its dividend per share payout by 5% to 21 cents. Hence, a share repurchase expansion within a year further inspires confidence among investors.
Earnings Review
Marsh & McLennan reported its second quarter operating earnings of 50 cents per share, a couple higher than the Zacks Consensus Estimate of 48 cents but significantly higher than the loss of 6 cents per share reported in the year-ago quarter. Adjusted operating earnings, which exclude one-time items in both the periods, spiked to $286 million from an operating loss of $29 million.
With the steady recovery in the economic environment, Marsh & McLennan posted improved results on account of strong top line growth in all lines of businesses and modest reduction in operating expenses that also drove the operating margin. These were partially offset by investment loss, higher compensation and benefits along with tax expenses.
Going ahead, the Zacks Consensus Estimate of earnings of 28 cents per share for the third quarter of 2011 indicate an increase of 3.5% year over year, factoring the ongoing weak global cues that could risk international operations of the company. A 12% year-over-year growth is estimated for full-year 2011, pegging the earnings at $1.84 per share.
The quantitative Zacks Rank for Marsh & McLennan is currently #3, indicating no clear directional pressure on the shares over the near term. Hence, we maintain our Neutral stance on the stock over the intermediate term.
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