Insurance coverage is an enduring and indispensable necessity for individuals, businesses, and organizations. This continual demand ensures a promising landscape for companies operating within this space.
Given this backdrop, it could be wise to load up the shares of fundamentally strong insurance broker companies Marsh & McLennan Companies, Inc. (MMC), AXA SA (AXAHY), and Brown & Brown, Inc. (BRO), which are well-equipped to capitalize on industry’s consistent demand.
Before jumping into the fundamentals of the aforementioned stocks, let us understand what insurance brokerage is and why it seems to be in a favorable spot.
Insurance brokerage companies offer personalized counsel and craft tailor-made insurance solutions that align precisely with each client's distinct requirements. Their proficiency in comprehending clients' risk profiles and offering fitting coverage options serves as a distinguishing factor in the competitive market landscape.
The global insurance brokerage market is poised to expand significantly, with an estimated growth of $75.24 billion, demonstrating a CAGR of 6.2% throughout the forecast between 2022 and 2027. Elevated demand for insurance policies, the adoption of unique valuation strategies, and a global rise in High-Net-Worth Individuals (HNWIs) are propelling the market forward.
Moreover, an increasing number of insurance brokerage companies are adopting technology to streamline operations and enhance client interactions. Technology-infused solutions have the potential to optimize efficiency and elevate customer service standards.
For instance, the worldwide market for Artificial Intelligence (AI) in insurance reached a value of $4.59 billion in 2022 and is projected to hit $79.86 billion by 2032, exhibiting a robust CAGR of 33.1% from 2023 to 2032.
Furthermore, despite economic fluctuations, both individuals and businesses tend to uphold their insurance coverage, as insurance is regarded as a fundamental need rather than discretionary spending.
Considering all the above factors, the industry will most likely maintain a favorable spot. Thus, investing in three strong market players within the insurance brokerage industry, MMC, AXAHY, and BRO, could be beneficial.
To that end, let us dig deeper into the fundamentals of featured stocks for a better perspective:
Marsh & McLennan Companies, Inc. (MMC)
MMC is a professional services company that provides advice and solutions to clients in the areas of risk, strategy, and people worldwide. It operates in two segments: Risk and Insurance Services; and Consulting.
On August 15, MMC paid a quarterly dividend of $0.71 per share on outstanding common stock, representing a 20% increase from its previous quarterly dividend of $0.59 per share.
The company’s annual dividend of $2.84 translates to a 1.50% yield on the prevailing prices, while its four-year average dividend yield is 1.45%. Its dividend payouts have grown at CAGRs of 10.7% and 10% over the past three and five years, respectively.
MMC’s trailing-12-month ROCE of 28.98% is 158.7% higher than the 11.20% industry average. Its trailing-12-month asset turnover ratio of 0.54x is 149.9% higher than the 0.22x industry average. Furthermore, its trailing-12-month ROTC of 12.13% is 114.3% higher than the 5.66% industry average.
For the fiscal second quarter, which ended on June 30, 2023, MMC’s revenue increased 9.2% year-over-year to $5.88 billion, while its operating income rose 6.8% from the year-ago value to $1.46 billion. In addition, the company’s attributable net income and EPS amounted to $1.04 billion and $2.07, up 7% and 8.4% from the prior-year quarter, respectively.
The consensus revenue estimate of $5.21 billion for the fiscal third quarter (ending September 2023) represents a 9.3% increase year-over-year. The consensus EPS estimate of $1.39 for the same quarter indicates a 17.5% improvement year-over-year. Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 17.2% to close the last trading session at $192.08.
MMC’s POWR Ratings reflect this robust outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability, Sentiment, and Quality. Among the 13 stocks in the Insurance - Brokers industry, it is ranked #2. To see additional POWR Ratings for Growth, Value, and Momentum for MMC, click here.
AXA SA (AXAHY)
Headquartered in Paris, France, AXAHY provides insurance, asset management, and banking services worldwide. The company operates through six segments: France; Europe; Asia; AXA XL; International; and Transversal & Central Holdings.
On August 3, AXAHY revealed its agreement to acquire Laya Healthcare Limited. Laya has established itself as a frontrunner in the Irish health sector, capturing approximately 28% of the market share and catering to nearly 700,000 policyholders, generating an estimated annual premium of around €800 million ($867.70 million).
Through this acquisition, AXAHY aims to amplify its European operations by venturing into a thriving, rapidly expanding health insurance market.
On July 27, AXAHY launched AXA Secure GPT, an internal solution built upon Microsoft's Azure OpenAI Service. Crafted within a concise three-month timeframe by AXAHY's internal specialists, utilizing its partnership with Microsoft, AXA Secure GPT offers employees access to a digital platform within a secure and data-privacy-compliant Cloud setting.
This platform facilitates the widespread utilization of revolutionary technologies like Generative AI and Large Language Models across the enterprise. Through AXA Secure GPT, employees gain the ability to generate, summarize, translate, and rectify texts, images, and codes.
The stock’s trailing-12-month ROCE of 13.14% is 17.3% higher than the 11.20% industry average. In addition, its trailing-12-month cash per share of $13.14 is 99.2% higher than the $6.60 industry average.
For the six-month period, which ended on June 30, 2023, AXAHY’s gross written premiums and other revenues increased 1.5% year-over-year to €55.70 billion ($60.41 billion). The company’s underlying earning came in at €4.11 billion ($4.46 billion), up 18.6% year-over-year. Moreover, its underlying earnings per share rose 8.5% from the year-ago value to €1.79.
Analysts expect AXAHY’s revenue for the fiscal period (ending December 2023) to be $87.81 billion, while its EPS for the same period is projected to increase 4.6% year-over-year to $3.41 and is further expected to improve by 5.6% per annum over the next five years.
The stock has gained 25.9% over the past year to close the last trading session at $29.91.
AXAHY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It also has a B grade for Growth, Momentum, Stability, and Sentiment. Within the same industry, it is ranked first. Click here to see the other ratings of AXAHY for Value and Quality.
Brown & Brown, Inc. (BRO)
BRO markets and sells insurance products and services in the United States, Canada, Ireland, the United Kingdom, and internationally. It operates through four segments: Retail; National Programs; Wholesale Brokerage; and Services.
On August 16, BRO paid its shareholders a quarterly dividend of $0.12 per share. The company’s annual dividend of $0.46 translates to a 0.64% yield on the prevailing prices, while its four-year average dividend yield is 0.72%.
Its dividend payouts have grown at CAGRs of 10.6% and 8.9% over the past three and five years, respectively. Also, it has a record of 23 years of consecutive dividend growth.
The stock’s trailing-12-month EBITDA margin of 32.35% is 61.9% higher than the 19.98% industry average. Also, its trailing-12-month asset turnover ratio of 0.30x is 39.5% higher than the 0.21x industry average. In addition, its trailing-12-month ROTA of 5.20% is 357.8% higher than the 1.14% industry average.
In the fiscal second quarter that ended June 30, 2023, BRO’s total revenues increased 23.5% year-over-year to $1.04 billion, while its income before income taxes rose 27.9% from the year-ago value to $254.40 million. The company’s net income came in at $190.40 million and $0.67 per share, representing increases of 31.1% and 31.4% from the prior-year quarter, respectively.
Street expects BRO’s revenue and EPS for the third quarter (ending September 2023) to increase 11% and 22.3% year-over-year to $1.03 billion and $0.61, respectively. Additionally, the company topped its EPS and revenue estimates in three of the trailing four quarters, which is promising.
BRO’s shares have gained 27.9% year-to-date and 29.1% over the past six months to close the last trading session at $72.91.
It’s no surprise that BRO has an overall rating of B, which translates to Buy in our proprietary rating system. It has a B grade for Growth, Momentum, Sentiment, and Quality. Out of 13 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have BRO’s ratings for Value and Stability. Get all BRO ratings here.
What To Do Next?
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MMC shares were trading at $192.26 per share on Thursday morning, up $0.18 (+0.09%). Year-to-date, MMC has gained 17.42%, versus a 15.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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