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Brown & Brown (BRO) on Growth Trajectory: Apt to Hold?


Brown & Brown Inc. BRO stands tall on growth prospects like strategic initiatives, discreet acquisitions and a firm capital position. The Zacks Rank #3 (Hold) insurance broker carries potential owing to a few good growth navigators.

Growth Projections: The Zacks Consensus Estimate for earnings per share is $1.83 for 2017 and $1.99 for 2018. Though the estimate for 2017 reflects a year-over-year decline of 1.5%, the same for 2018 will rebound to 8.4% growth. Revenues for both 2017 and 2018 are expected to increase about 4.7% and 4.6%, respectively.

The company’s expected long term earnings growth is 10%.

VGM Score: Brown & Brown carries a VGM Score of B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three factors.

An Outperformer: Shares of Brown & Brown have rallied 25.5% in a year, outpacing the industry’s increase of 22.7%. The shares have also exceeded the S&P 500, gaining 16.3% over the same time frame.

Attractive Valuation: Looking at the company’s price-to-book ratio — the best multiple for valuing insurance brokers because of large variations in their earnings results from a quarter to the next — valuation looks attractive at the current level. The company has a trailing 12-month P/B ratio of 1.6, falling significantly below the industry average of 4.2. Undervalued shares with growth prospects are the best investment bets.

Positive Earnings Surprise History: Brown & Brown has surpassed the Zacks Consensus Estimate in the last seven quarters with an average beat of 6.45%.

Growth Drivers in Place: Brown & Brown boasts impressive growth, driven by organic means as well as an enthusiastic inorganic impetus. The company has acquired more than 460 insurance intermediary operations over a span of more than two decades. All these put together have been driving the commissions and fees higher. The company remains focused on investments to boost organic growth and margin expansion.

For 2017, the company envisions EBITDAC margins to be between 33% and 35%.

To tap middle market companies with annual premiums of $0.1 million and below, Brown & Brown launched Core Commercial Program, expected to generate revenues ranging between $6 million and $8 million in the second half of 2017 along with a net P&L investment of $1-$3 million. The company anticipates revenues to increase in 2018 and range between $15 million and $17 million with the net P&L investment of $2-$4 million.

A strong capital position has been aiding the company to return value to shareholders. With the latest 10.2% increase, the company saw 23rd consecutive year of dividend hikes and currently yields 1.2%. In 2017, Brown & Brown intends to pay out $70 million in dividends.

Stocks to Consider

Some better-ranked stocks from the insurance industry are Atlas Financial Holdings, Inc. AFH, Markel Corporation MKL and Mercury General Corporation MCY, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Financial Holdings engages in underwriting commercial automobile insurance policies in the United States. The company delivered positive surprises in two of the last four quarters with an average beat of 57.94%

Markel Corporation markets and underwrites specialty insurance products in the United States and internationally. The company delivered positive surprises in two of the last four quarters with an average beat of 21.06%.

Mercury General Corporation engages in writing personal automobile insurance in the United States. The company delivered positive surprises in three of the trailing four quarters with an average beat of 1.06%.

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