Insurance brokerage, risk management, and consulting services provider, Arthur J Gallagher & Co. (AJG), relies heavily on acquisitions to create growth.
The company operates in 57 countries and has built a network of consultants and correspondent brokers, spread over 150 countries. (See Insiders’ Hot Stocks on TipRanks)
Let us take a look at the company’s latest financial performance, corporate updates, and newly added risk factors.
Q3 Financial Results
Gallagher earned $2.1 billion in revenues for Q3 2021, against $1.8 billion in the same quarter last year, surging past the consensus estimate of $1.85 billion. The company posted adjusted earnings of $1.33 per share against $1.09 per share in the same quarter last year, exceeding the consensus estimate of $1.22. (See Arthur J Gallagher stock charts on TipRanks)
The company ended Q3 with $2.7 billion in cash, and plans to distribute a quarterly cash dividend of $0.48 per share on December 17, to shareholders on record as of December 3.
Corporate Updates
In all, Gallagher closed 17 acquisitions in the first nine months of 2021, including five acquisitions in Q3. In Q4 2021, AJG expects to close the acquisition of the reinsurance brokerage business operated by Willis Towers Watson (WLTW).
The company has acquired W.P. Dolle, an insurance and risk management company in the Cincinnati tristate region. Established in 1872, W.P. Dolle specializes in serving manufacturing and distribution clients.
The company also acquired River Valley Capital Insurance, a retail property and casualty brokerage in the Midwest region, specializing in the trucking industry, with a particular focus on the long-haul trucking segment.
Gallagher continued the spree, acquiring wholesale brokerage SeaCoast Underwriters, which operates in 14 states including Florida. SeaCoast specializes in commercial property and casualty, transportation, and flood risks.
Similarly, on the international front, Gallagher has expanded India-based Edelweiss Gallagher and New Zealand-based Matt Jensen insurance brokerages, while buying out U.K.-based Manchester Underwriting Agencies.
Risk Factors
According to the new TipRanks Risk Factors tool, Gallagher carries 33 risk factors, and the company recently updated its risk profile with five new acquisition-related risk factors .
Notably, Gallagher has informed investors that it may not be able to obtain funds to finance the Willis Towers Watson acquisition on acceptable terms, and that it may not achieve the anticipated benefits from the acquisition.
Furthermore, Gallagher has cautioned that acquisitions may subject it to additional regulatory requirements, which could increase costs and set back its operating results and financial condition.
Most of Gallagher’s risk factors fall under the Finance and Corporate category, with 30% of the total risks, and below the sector average of 63%. Meanwhile, Gallagher’s stock price has gained 31% year-to-date.
Analysts’ Take
Following Gallagher’s Q3 earnings report, Truist Financial analyst Mark Hughes reiterated a Buy rating on Gallagher stock, raising the price target to $200 from $170, which implies 23.09% upside potential.
Consensus among analysts is a Moderate Buy, based on 4 Buys, 3 Holds, and 1 Sell. The average Arthur J Gallagher price target of $171.50 implies 5.55% upside potential to current levels.
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