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Why is it Worth Retaining Arthur J. Gallagher (AJG) Stock?

Organic sales, acquisitions, and mergers and sustained cash flow generation should drive Arthur J. Gallagher (AJG).

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This story originally appeared on Zacks

Arthur J. Gallagher’s AJG strong results at Brokerage and Risk Management segments, solid cash flows, and favorable growth estimates make it worth retaining in one’s portfolio.



The company has a stellar track record of beating earnings estimates in the last 12 quarters, with the average being 9.29%

- Zacks

Zacks Rank and Share Price Performance

Arthur J. Gallagher currently carries a Zacks Rank #3 (Hold). Year to date, the stock has rallied 16.9%, outperforming the industry’s increase of 11.7%.

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Growth Projections

The Zacks Consensus Estimate for 2021 earnings is pegged at $5.31, indicating a 12.5% increase from the year-ago reported figure while that for 2022 is pegged at $5.65, indicating a 6.3% increase from the year-ago reported figure. The expected long-term earnings growth is pegged at 10.6%.

Estimate Revision

The Zacks Consensus Estimate for 2021 has moved 3.5% north while the same for 2022 has moved up 2.7% in the past 60 days, reflecting analyst optimism.

Business Tailwinds

Arthur J. Gallagher boasts impressive growth, driven by organic sales, acquisitions, and mergers. Growing contribution from its Brokerage and Risk Management segments has been driving organic growth.



Given the rebound in employment, economic activity, and solid new business, it further estimates organic growth in Risk Management in the third and the fourth quarters of 2021 in double digits and 2021 organic growth to be over 10%. EBITDAC margin is expected to remain above 19%.



The company’s merger and acquisition pipeline is quite strong with about $300 million of revenues, associated with about 40 term sheets either agreed upon or being prepared.  Given the number and size of the non-U.S. acquisitions, the insurance broker expects international contribution to total revenues to increase,



The company estimates more than $2.5 billion for mergers and acquisitions, consisting of $1 billion in cash, about $650 million of net cash generation in the second half of 2021, and $600 million to $700 million of borrowing capacity.



It expects 2022 annual cash flows to increase by about $125 million to $150 million.

Solid Dividend History

The company has a solid track record of increasing dividends each year at a six-year CAGR (2016-2021) of 4.8%. Arthur J. Gallagher’s dividend currently yields 1.4%, better than the industry average of 1.1%.  A strong capital and liquidity position supports the dividend hikes.

Stocks to Consider

Some better-ranked stocks in the same space include Marsh & McLennan Companies MMC, Aon plc AON, and Brown & Brown BRO.

        

Marsh & McLennan delivered an earnings surprise of 23.24% in the last reported quarter. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.



Aon delivered an earnings surprise of 27.22% in the last reported quarter and carries a Zacks Rank #2 (Buy).



Brown & Brown delivered an earnings surprise of 22.50% in the last reported quarter and carries a Zacks Rank #2.













 



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Marsh & McLennan Companies, Inc. (MMC): Free Stock Analysis Report

 

Aon plc (AON): Free Stock Analysis Report

 

Arthur J. Gallagher & Co. (AJG): Free Stock Analysis Report

 

Brown & Brown, Inc. (BRO): Free Stock Analysis Report

 

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