Willis Towers (WLTW) Banks on Solid Segmental Performance

Willis Towers Watson Public Limited Company WLTW is well-poised for growth on the back of strong performance across its segments, strategic buyouts and solid capital position.

The stock has seen its estimates for 2021 and 2022 move up nearly 1.1% and 0.9%, respectively, in the past 60 days that reflects investors’ optimism.

The stock carries a VGM Score of B. VGM Score helps to identify stocks with the most attractive value, best growth and the most promising momentum.

Organic growth across the company’s segments has been driving Willis Towers’ revenues, which witnessed CAGR of 19.6% over the last five years (2015-2020). The Zacks Consensus Estimate for the company’s 2021 and 2022 revenues is pegged at $9.72 billion and $10.23 billion, respectively, indicating year-over-year increase of nearly 3.9% and 5.2%.

Insurance consulting and technology revenues benefited from technology sale while investment revenues continue to gain from expansion of the delegated investment services portfolio under the Investment, Risk & Reinsurance (IRR) segment of Willis Towers.

The Human Capital and Benefits (HCB) segment is well poised to gain from higher consulting and brokerage services, continued expansion of client portfolio for both local and global appointments, increased project work, primarily in Great Britain and Western Europe, and elevated demand in data services and advisory work across all geographies.

Growth of the insurance broker partly depends on its ability to make acquisitions, which not only expand its geographical footprint but also fortify its product portfolio. In July 2019, it acquires TRANZACT to consolidate its position as the leader in the growing Medicare market space. Moreover, in the first quarter of 2020, the company has agreed to be acquired by Aon plc AON, which will enable it to more proactively support clients in developing solutions to problems that are inadequately managed today.

Willis Towers remains well-positioned from the liquidity perspective. It intends to maintain a strong and durable balance sheet and continue pushing forward the cost savings and efficiency initiatives. Last year, its free cash flow almost doubled to $1.6 billion year over year, owing to improvements in working capital coupled with effective cost contained efforts.

The company’s debt to capital of 34% betters the industry average of 50.3%. This provides it flexibility to raise additional debt.

In 2020, Willis Towers paid approximately $346 million in dividends. However, it does not expect to repurchase any shares in 2021, given certain prohibitions in the transaction agreement with Aon. Currently, it has $500 million remaining in share repurchase authorization.

The company has a decent earnings surprise history too. Its earnings beat estimates in the last four quarters. Willis Towers has a trailing four-quarter earnings surprise of 6.39%, on average.

Shares of this Zacks Rank #3 (Hold) insurance broker have gained 44.9% compared with the industry’s increase of 42.3% in the past year.

The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $12.32 and $13.27, indicating year-over-year increase of 5.3% and 7.7%, respectively.

Stocks to Consider

Some better-ranked players in the insurance industry include Brown & Brown, Inc. BRO and SelectQuote, Inc. SLQT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Brown & Brown surpassed estimates in each of the last four quarters, with the average being 16.55%.

SelectQuote surpassed estimates in three of the last four quarters while missing in one, with the average being 121.53%.

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