Arthur J. Gallagher (AJG) Gains 23% in a Year: More Upside Left?

Shares of Arthur J. Gallagher & Co. AJG have gained 22.9% in a year compared with the industry’s increase of 1%. The Finance sector and the Zacks S&P 500 composite declined 10.3% and 12.4%, respectively, in the same time frame. With  a market capitalization of $37.7 billion, the average volume of shares traded in the last three months was about 0.9 million.

Image Source: Zacks Investment Research

Strong-performing Brokerage and Risk Management segments, strategic buyouts to capitalize on growing market opportunities, effective capital deployment and upbeat guidance continue to drive this Zacks Rank #3 (Hold) insurance broker.

AJG has a stellar track record of beating estimates in the last 16 quarters. The Zacks Consensus Estimate for 2022 earnings  has moved 0.4% north in the past 30 days, reflecting analyst optimism.

Can AJG Retain the Momentum?

The Zacks Consensus Estimate for Arthur J. Gallagher’s 2022 earnings is pegged at $7.79, indicating an increase of 42.2% on 4.5% higher revenues of $8.5 billion. The consensus estimate for 2023 earnings is pegged at $8.63, indicating an increase of 10.8% on 10.1% higher revenues of $9.3 billion.

The long-term earnings growth rate is currently pegged at 10%.

AJG boasts being the largest property/casualty third-party claims administrator and the fourth largest insurance broker globally, based on revenues. Sustained solid operational excellence at its Brokerage and Risk Management segments should drive the top line.

Its focus on lowering costs along with growing the top line is likely to favor margins. Full-year 2022 EBITDAC margin is expected to remain close to 19%. In Brokerage, the insurance broker is poised to deliver around 10 to 20 basis points of full-year adjusted margin expansion.

AJG has an impressive inorganic growth story. The insurance broker closed 19 buyouts year to date and has quite a strong pipeline with about $250 million of revenues, associated with almost  40 term sheets, either agreed upon or being prepared. Arthur J. Gallagher estimates M&A capacity at more than $4 billion by  the end of 2023.

Strong operational performance has been driving Arthur J. Gallagher’s cash flows. Thus, AJG expects to generate $125 million - $150 million in cash flow in 2022 and more in 2023.

Banking on stable cash flow, Arthur J. Gallagher has increased dividends at a seven-year CAGR (2016-2022) of 3.8%, with dividends currently yielding 1.1%. AJG also has a $1.5 billion share buyback program under its authorization.

AJG has a VGM Score of B. This helps to identify stocks with the most attractive value, growth and momentum.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Berkshire Hathaway (BRK.B), American Financial Group AFG and W.R. Berkley Corporation WRB, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Berkshire Hathaway’s 2022 and 2023 earnings implies 14.4% and 5.9% year-over-year growth, respectively. The average four-quarter surprise is 17.55%.

The Zacks Consensus Estimate for BRK.B’s 2022 and 2023 earnings has moved 7.6% and 8.8% north, respectively, in the past 60 days. Year to date, shares of BRK.B have lost 6.9%.

American Financial’s earnings surpassed estimates in the last four quarters, the average earnings surprise being 37.09%.

The Zacks Consensus Estimate for AFG’s 2022 and 2023 earnings has moved 1% each north, respectively, in the past 30 days. Year to date, shares of AFG have lost 5.4%.

The Zacks Consensus Estimate for W.R. Berkley’s 2022 and 2023 earnings implies 20.6% and 10.4% year-over-year growth, respectively. The average four-quarter surprise is 29.95%.

The Zacks Consensus Estimate for WRB’s 2022 and 2023 earnings has moved 8.8% and 6.8% north in the past 60 days, respectively. Year to date, shares of WRB have increased  21.5%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
 
Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
 
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
 
American Financial Group, Inc. (AFG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research