Shares of Arthur J. Gallagher AJG have rallied 35% year to date, outperforming the Finance sector and the S&P 500 composite’s return of 23.2% and 27.7%, respectively. It, however, underperformed the industry’s growth of 37.8%.

AJG YTD Price Performance

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With a market capitalization of $66.61 billion, the average volume of shares traded in the last three months was 0.9 million.

American Financial closed at $303.58 on Thursday and is trading above the 50-day and 200-day simple moving averages (SMA) of $291.86 and $269.31, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

AJG’s Growth Projection Encourages

The Zacks Consensus Estimate for AJG’s 2024 earnings per share indicates a year-over-year increase of 15.5%. The consensus estimate for revenues is pegged at $11.40 billion, implying a year-over-year improvement of 14.8%.

The consensus estimate for 2025 earnings per share and revenues indicates a year-over-year increase of 11.4% and 10.2%, respectively, from the corresponding 2024 estimates.

Impressive Earnings Surprise History of AJG

This Zacks Rank #3 (Hold) company’s bottom line outpaced estimates in three of the trailing four quarters and matched in one, the average surprise being 1.16%.

Factors Acting in Favor of AJG

The insurer remains focused on generating both organic (particularly international) and inorganic growth and is, thus, tapping into growth opportunities worldwide. This, coupled with solid retention and improving renewal premiums across all major geographies and most product lines, bodes well for growth. The insurer expects 2024 organic revenues and adjusted EBITDAC margins of the Risk Management and Brokerage segments to be better than the 2023 levels.

In the Brokerage segment, AJG expects organic growth in the range of 7-9% in 2024. In the Risk Management segment, the company expects organic growth to be 9% and margins around 20.5% in 2024.

AJG’s revenues are geographically diversified with strong domestic and international operations. International contributes about one-third of revenues. Given the number and size of its non-U.S. acquisitions, AJG expects international contribution to its total revenues to trend upward.

Its inorganic growth story is impressive. Since Jan. 1, 2002, the company has acquired 725 companies. AJG has a strong merger pipeline of more than 100 companies representing about $1.5 billion of annualized revenues. Of these 60 term sheets are signed or being prepared, representing about $700 million of annualized revenues.

Banking on its capital position, AJG distributes wealth to shareholders through dividend hikes and share repurchases. Its dividend has increased at a three-year CAGR of 7.7%.

However, Arthur J. Gallagher has been experiencing an increase in expenses due to higher compensation and operating expenses that have been eroding margins.

Key Picks

Investors interested in the multi-line insurance industry may look at some better-ranked players like EverQuote, Inc. EVER, CNO Financial Group, Inc. CNO and Radian Group Inc.  RDN, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for EverQuote’s 2024 and 2025 earnings implies year-over-year growth of 147.4% and 10.7%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 149.58%. Year to date, shares of EVER have rallied 49.8%.

The Zacks Consensus Estimate for CNO Financial’s 2024 and 2025 earnings implies year-over-year growth of 20.7% and 0.6%. It beat earnings estimates in three of the past four quarters while missing in one, with an average surprise of 24.51%. Year to date, shares of CNO have gained 41%.

The Zacks Consensus Estimate for Radian’s 2024 and 2025 revenues implies year-over-year growth of 6.4% and 4.8%, respectively. It beat earnings estimates in each of the past four quarters, with an average surprise of 17.65%. Year to date, shares of RDN have gained 21.1%.

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