Marsh & McLennan Companies, Inc. MMC, operating in the insurance brokerage space, is currently considered relatively overvalued, trading at a trailing 12-month price/book (P/B) of 7.47X. This figure is higher than the broader Insurance- Brokerage average of 6.72X. Other industry players, such as Arthur J. Gallagher & Co. AJG and Brown & Brown, Inc. BRO, are trading at 5.74X and 4.48X P/B, respectively. Given MMC’s premium valuation, we need to carefully assess this stock’s key drivers and growth prospects before deciding to buy, hold or sell this stock.

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Key Drivers

MMC demonstrates a robust business model, leveraging its diversified operations across insurance broking, risk management, and consulting services. MMC boasts strong underlying revenue growth and proven resilience in economic cycles. The company has witnessed a better underlying revenue growth rate in the past three years compared to the pre-pandemic decade. It also expects a mid-single-digit growth rate or higher for revenues in 2024. Robust demand for its services due to the rise in macroeconomic uncertainty and risk awareness are aiding the sustainability of MMC’s top-line growth.

Prudent expense management through operating leverage and efficiencies has led to significant margin expansion for MMC. Its adjusted operating margin improved 110 basis points to 22.4% in the third quarter of 2024. To achieve efficiency, the company aims to optimize shared services, expand right-shoring strategies, and enhance centers of excellence. Furthermore, investments in technology and automation are expected to drive additional efficiencies.

The Risk and Insurance Services segment, contributing approximately 64% to MMC’s total revenues in the first nine months of 2024, is driven by new business growth, higher renewal rates and improved insurance and reinsurance pricing. The Consulting segment, which accounted for roughly 36% of the company’s revenues in the first nine months of 2024, benefits from sustained demand for solutions in health, wealth and career services. The company is also shifting its focus to higher areas of growth like digital, climate resilience, sustainable investing, cyber, etc.

Marsh & McLennan pursues an active inorganic growth strategy, frequently acquiring businesses across its operating segments. In the first nine months of 2024, MMC spent $1 billion on acquisitions, up from $619 million in the prior-year comparable period. The Risk and Insurance Services segment completed eight acquisitions in the first nine months, including buyouts such as Horton Group, AmeriStar Agency, Querbes & Nelson and Louisiana Companies. The Consulting unit completed five acquisitions in the same time frame. MMC acquired Acumen Solutions Group LLC, a full-service insurance agency based in Melville, NY, in January 2025.

A sound financial foundation supports MMC’s acquisition-driven strategy and other growth initiatives. The company reported operating cash flows of $2.3 billion in the first nine months of 2024. This financial strength enables MMC to enhance shareholder value through dividend payments and share repurchases. The company has increased its dividend for 15 consecutive years, offering a dividend yield of 1.5%, higher than the industry average of 1.1%.

MMC Earnings Estimates & Surprise History

The Zacks Consensus Estimate for MMC’s 2024 earnings is pegged at $8.69 per share, indicating 8.8% year-over-year growth. The same for 2025 signals a further 8.2% increase. The estimates witnessed no movement in the past week. Also, the consensus mark for MMC’s 2024 and 2025 revenues suggests 6.9% and 9.3% year-over-year growth, respectively.

The company beat earnings estimates in each of the past four quarters with an average surprise of 2.7%.

MMC Stock Price Performance

Marsh & McLennan’s shares have risen 10.3% in the past year, underperforming the industry average of 25.9%. Its growth also lagged behind companies such as Arthur J. Gallagher and Brown & Brown, as well as the broader S&P 500 Index. Investors might be worried about a few headwinds, which might impact the company in the near term. Let’s have a look at those headwinds.

MMC's 1-Year Price Performance Comparison

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A Few Headwinds

As of Sept. 30, 2024, MMC’s long-term debt stood at $12.33 billion, while cash and cash equivalents were only $1.8 billion. High debt levels might push interest expenses further high in the future, limiting margins.

Investment income has dropped significantly, from $61 million in 2021 to $5 million in 2023, due to weaker private equity returns. In the first nine months of 2024, the figure halved year over year to $3 million, highlighting ongoing challenges in generating consistent investment returns.

Conclusion

While Marsh & McLennan exhibits strong revenue growth, robust demand for its diversified services, and a solid track record of shareholder returns, its high valuation, rising debt levels, and declining investment income present notable challenges. The company’s resilience, ongoing margin improvements, and active acquisition strategy position it well for long-term growth, but near-term headwinds may weigh on performance. Current shareholders should stay put, and new investors should wait for a better entry point. Marsh & McLennan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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