Why Should You Add Marsh & McLennan (MMC) to Your Portfolio?


Marsh & McLennan Companies, Inc. (MMC Quick QuoteMMC ) has been in investors’ good books on the back of inorganic growth strategies and a growing top line.
Over the past seven days, the company has witnessed its 2021 earnings estimate move 0.2% north, thus reflecting investors’ confidence in the stock.

It retained investors’ bullish sentiments by maintaining its beat streak in all the last four quarters, the average being 13.88%. This, in turn, underlines its operational excellence.

Marsh & McLennan’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s 31.2% ROE betters its industry average of 27.4%, reflecting its efficiency in utilizing its shareholders’ funds.

The company had a solid second quarter owing to contribution from its Risk and Insurance Services as well as Consulting segments. The period marked the 15th consecutive quarter of rate hikes in the commercial P&C insurance marketplace. Marsh witnessed its strongest underlying growth since 2003. The leading broker is well-poised for growth on the back of its strategic initiatives.

It made numerous purchases within its different operating units that have so far enabled it to tap new geographies, expand within its existing territories, foray into new businesses, develop new segments and specialize within its prevalent operations. In 2019, it purchased JLT to enhance its portfolio.

Last year was a record period for MMA with regard to acquired revenues since its establishment in 2009. As a case in point, the company completed eight transactions during the same time frame, fetching combined revenues of around $235 million. On Apr 1, 2021, the company bought PayneWest, one of the largest independent agencies in the United States.

Marsh & McLennan’s operating performance has been favorable for the past many years, driven by its diverse product offerings, a wide geographic footprint and strong client retention. Its revenues have been increasing consistently since 2010 (except in 2015). The trend continued in the first half of 2021 as well with revenues improving 9% on an underlying basis from the prior-year comparable period’s level, courtesy of strong Risk & Insurances Services and Consulting segments.

We expect revenues to continue rising on the back of acquisitions, significant capital expenditures undertaken for growth, launch of products and services, enhancements of digital capabilities and diversification into new businesses.

The company’s investment income is also bouncing back as the economy is reviving. In the first half of 2021, the same came in at $30 million, aided by the private equity portfolio.

The insurance brokerage provider has maintained consistent cash flow generation for several years. Its disciplined capital management through share buybacks and dividend payments cemented investors’ trust in the stock.

In July 2021, the board of directors hiked the quarterly cash dividend by 15%, reflecting the 12th consecutive year of dividend increase at Marsh & McLennan. The company has plans to deploy more than $3.5 billion of capital in 2021 across dividends, debt reduction, acquisitions and share repurchases.

For the current year, this presently Zacks Rank #2 (Buy) player’s earnings estimate suggests an upside of 22.3% from the year-ago reported figure. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance

Year to date, this leading insurance broker has gained 38.8%, outperforming its industry’s growth of 13%.

Zacks Investment Research
Image Source: Zacks Investment Research

Other companies in the same space, such as Aon plc (AON Quick QuoteAON ) , Brown & Brown, Inc. (BRO Quick QuoteBRO ) and Willis Towers Watson Public Limited Company (WLTW Quick QuoteWLTW ) have also rallied 10%, 21.4% and 13.5%, respectively, in the same time frame. While both Aon and Brown & Brown hold a Zacks Rank of 2, Willis Towers Watson sports a Zacks Rank #1 (Strong Buy), currently.

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