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Marsh & McLennan Cost-Saving Initiatives to Boost Growth


On Nov 28, we issued an updated research report on Marsh & McLennan Companies, Inc. MMC

The globally leading insurance broker’s third-quarter earnings of 69 cents per share were in line with the Zacks Consensus Estimate. The bottom line also improved 10% year over year on the back of significant margin expansion in both Risk & Insurance Services and Consulting.

Marsh & McLennan has been capitalizing on strong underwriting results since 2010. The company’s consistent top-line improvement has been buoyed by its organic and inorganic growth strategies. The third quarter marked the 14th straight quarter of increasing underlying revenues. This in turn has resulted in 3% year-over-year growth in underlying revenues for the first nine months of 2016.

Prudent expense management through numerous cost-saving initiatives also helped the company to deliver solid operating and financial performance over years. Divesture of redundant units and curbing costs on compensation and benefits resulted in a 3.4% year-over-year decrease in total operating expenses in the last reported quarter.

We also appreciate the company’s capital management via acquisitions, continued dividend payouts and share buybacks. During the first nine months of 2016, the company bought back 10 million shares. In Nov 2016, the board of directors approved a dividend hike of 9.7% and in the same month the company’s affiliate signed an agreement to acquire Bluefin Insurance Group Limited, a unit of AXA Group. For the full year, Marsh & McLennan plans to deploy roughly $2.3 billion of capital.

Via these initiatives, the company has been able to retain investors’ confidence on the stock persistently. Notably, year to date, the stock has gained 25.83%, which is almost same to the price appreciation of 25.53% for the Zacks categorized Insurance-Brokers Industry.

However, the company’s operations outside of the U.S are severely impacted by foreign exchange volatility. Marsh & McLennan expects adverse foreign exchange to impact earnings per share in 2016 by 7 cents.

Higher tax refunds are another cause for concern. In fact, adjusted tax rate in the third quarter rose 30 basis points year over year.

In addition to these, persistently soft interest rate has been limiting the company’s net investment income. In the third quarter, the metric declined $34 million from the last-year quarter. For 2016, Marsh & McLennan expects investment income to be much lower than $38 million in 2015.

Zacks Rank and Stocks to Consider

Marsh & McLennan presently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the insurance industry that warrant a look include Alleghany Corporation Y, First American Financial Corporation FAF and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation deals with Property & Casualty reinsurance and insurance businesses in the U.S. and internationally. The company recorded positive surprises in three of the last four quarters with an average beat of 20.52%.

First American Financial is a leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S. The company beat estimates in all the trailing last four quarters with an average beat of 14.32%

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It posted positive surprises in all of the last four quarters with an average beat of 9.27%.

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