Amid an escalating geopolitical conflict with Russia, the majority of financial stocks have been performing poorly. IBD's insurance brokers group has been no exception, ranking 107th on the list of 197 industries IBD tracks.
Nevertheless, there are a few select stocks showing strength. Brown & Brown is the leader of this group and one of the few financial stocks in the IBD 50.
Brown & Brown is an insurance broker based out of Daytona Beach, Fla. The company primarily sells insurance services for property, casualty and employee benefits. The firm offers the majority of insurance services across the U.S. but has been expanding into Canada, Bermuda, Cayman Islands, Ireland and the United Kingdom.
What is striking about Brown & Brown is the strength its shares are showing against other financial stocks. Strong momentum has the stock's relative strength line at all-time high. And the Relative Strength Rating is a solid 93. This comes as many stocks in the industry are reaching new 52-week lows.
The outperformance is due in large part to the unique nature of Brown & Brown's business. The company earns its revenue primarily on commissions from other insurance brokers and direct fees from customers. This leaves it with very little of the direct risk from underwriting that other insurers face.
Financial results and growth have been solid, with EPS growing from $1.69 in 2020 to $2.18 in 2021. Further growth is expected, with EPS projected to increase to $2.34 and $2.55 in 2022 and 2023, respectively.
Financial Stock Grows Through Acquisitions, Tech Investments
Brown & Brown is focused on growth through acquisitions. Just last month, the company announced the acquisition of three new companies, Orchard Underwriters, Cross Cover Insurance Brokers and BdB Limited.
Brown & Brown is also expanding its technological capabilities thanks to a recent partnership to launch technology-based risk management solutions.
This will allow customers to receive notifications on advanced events that could affect their insured properties, enabling them to make more proactive decisions and stay informed. This could potentially be a huge value-add for both the customers and company services. The system — once implemented — will be the first of its kind in the property and casualty insurance sector.
Despite recent strength, there certainly remain risks in company growth. There is the risk that technological investments do not provide the expected benefits for customers.
In addition, the company will be harmed if the insurance industry slows dramatically, which could occur if consumers face increased challenges meeting their everyday needs amid higher inflation and lower wage growth.
Brown & Brown stock is forming a flat base with a 70.85 buy point, according to MarketSmith pattern recognition.
