Why Should You Hold Marsh & McLennan In Your Portfolio?
Zacks Investment Research | May 21, 2019 08:02AM ET
Marsh & McLennan Companies, Inc. (NYSE:MMC) is well poised for growth on the back of solid operating performance and inorganic growth.
The company flaunts an encouraging earnings surprise history, having outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 3.44%. This trend of consecutive estimate surprises reflects Marsh & McLennan’s operating efficiency.
Its return on equity — a profitability measure — is 29.7%, better than the industry average of 25.8%. Further, the metric reflects the company’s effectiveness in utilizing shareholders’ money.
Marsh & McLennan recently delivered first-quarter 2019 adjusted earnings per share of $1.52, surpassing the Zacks Consensus Estimate by 4.8%. Also, the bottom line improved 10.1% year over year. Moreover, its consolidated revenues were $4.1 billion, up 4% on an underlying basis.
The company’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 for in 2015). This favorable trend continued in 2018 and the first quarter of 2019, with the metric rising 6.6% and 4%, respectively, year over year, led by strong segmental growth, acquisitions and foray into new areas etc. Given the company’s initiatives to expand its portfolio, we expect revenues to grow going forward.
Acquisition is one of Marsh and McLennan’s core growth strategies. The company has made numerous purchases within its different operating units that enabled it to enter new geographies, expand within the existing ones, foray into fresh businesses, develop new segments and specialize within its current businesses. It spent $140 million for acquisitions in the first three months of 2019.
The company’s sturdy financial position, backed by a solid balance sheet and a consistent cash flow, also impresses. Its disciplined capital management through share buyback and dividend payments strengthened investors’ confidence in the stock. The company has been repurchasing shares over the past several quarters.
However, its operating expenses escalated over the last several years due to higher compensation and benefits. The same further increased 7.2% and 1.3% during 2018 and the first quarter of 2019, respectively, on account of rise in compensation and benefits plus other operating expenses. A persistent increase in expenses might weigh on the company’s margins.
The Zacks Consensus Estimate for current-year earnings is pegged at $4.61, suggesting an improvement of 5.9% from the year-ago quarter’s number. Meanwhile, the consensus mark for revenues stands at $16.7 billion, indicating 12% growth from the year-ago quarter.
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For 2020, the Zacks Consensus Estimate for earnings stands at $5.08, suggesting 10.3% growth from the year-earlier quarter figure. Further, the consensus mark for revenues is pegged at $18.1 billion, implying 7.9% rise from the year-earlier period.
The expected long-term earnings growth rate is 11.8%, above the industry average of 10.7%, which is an upside for the company.
Shares of this Zacks Rank #3 (Hold) company have rallied 17.5% in a year, underperforming its Zacks Investment Research
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