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Here's Why Hold is an Apt Strategy for Willis Towers (WTW)

Zacks Equity Research
·4-min read

Willis Towers Watson plc WTW is well-poised for growth on increasing organic commissions and fees, customer retention levels, new business, strategic buyouts, solid capital position and favorable growth estimates. These factors cumulatively make Willis Towers stock worth retaining in one’s portfolio.

Willis Towers has a solid track record of beating earnings estimates in the last 12 quarters.

Zacks Rank & Price Performance

Willis Towers currently carries a Zacks Rank #3 (Hold). Year to date, the stock has lost 13% compared with the industry’s decline of 11%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Optimistic Growth Projections

The Zacks Consensus Estimate for Willis Towers’ 2022 earnings is pegged at $13.58, indicating an increase of 17.1% from the year-ago reported figure. The consensus mark for 2023 earnings stands at $15.55, suggesting growth of 14.5% year over year.

The expected long-term earnings growth is pegged at 15.6%, better than the industry average of 11.6%.

Business Tailwinds

Willis Towers’ top line should continue to benefit from solid customer retention levels and growing new business. For 2022, WTW expects to deliver mid-single-digit organic revenue growth.

The company’s growth strategy focuses on core opportunities with the highest growth and returns, which include gaining market share in Risk and Broking and Individual Marketplace. The broker innovated and developed its offerings in markets and boosted its abilities in fast-growth markets like health insurance, cyber and climate.

While WTW stays focused on core opportunities to deliver the highest growth and return, it looks for strategic inorganic expansion that expands its geographical footprint, adds capabilities and strengthens its portfolio.

Willis Towers remains focused on improving liquidity while maintaining a solid balance sheet.

Cost Savings Program

Willis Towers projects $300 million in cost reductions to contribute 300 basis points of improvement to the fiscal 2024 margin target by maximizing global platforms, right-shoring operations, rationalizing real estate and modernizing IT. Thus, the insurance broker plans a $750 million investment over a three-year period through 2024.

Effective Capital Deployment

Willis Towers has a decent dividend history of raising dividends at a nine-year CAGR (2014-2022) of 11.8%. The board of directors approved a $4 billion share buyback program last September. WTW expects to complete an additional repurchase of $3 billion in 2022.

In May 2022, WTW increased the existing share repurchase authority to $1 billion, which is in addition to the approximately $1.3 billion remaining on the current open-ended repurchase authority.

Willis Towers estimates to deploy $10-$11 billion in capital through 2024 to drive shareholder value with new investment and aims for industry-leading total shareholder return.

Upbeat 2024 Financial Targets

Willis Towers aims to deliver more than $10 billion by delivering growth in the mid-single-digit range, with reinvestment in differentiated solutions and scalable innovation and increasing market share, adjusted operating margin between 24% and 25%, and adjusted earnings per share between $18 and $21. Free cash flow is estimated between $5 billion and $6 billion.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Arthur J. Gallagher & Co. AJG, Ryan Specialty Group RYAN and Axis Capital Holdings AXS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for AJG’s2022 and 2023 earnings indicates a respective year-over-year increase of 42.2% and 12%. Arthur J. Gallagher delivered a four-quarter average earnings surprise of 6.52%.

The Zacks Consensus Estimate for RYAN’s 2022 and 2023 earnings indicates a respective year-over-year increase of 13% and 19.3%. Ryan Specialty delivered a four-quarter average earnings surprise of 19.68%.

The Zacks Consensus Estimate for AXS’2022 and 2023 earnings indicates a respective year-over-year increase of 22.5% and 6.8%. Axis Capital delivered a four-quarter average earnings surprise of 54.8%.

Shares of AJG, RYAN and AXS have lost 4.4 % and 3.5% year to date, while that of AXS gained 5.7%.


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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
 
Arthur J. Gallagher & Co. (AJG) : Free Stock Analysis Report
 
Willis Towers Watson Public Limited Company (WTW) : Free Stock Analysis Report
 
Ryan Specialty Group Holdings, Inc. (RYAN) : Free Stock Analysis Report
 
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Zacks Investment Research