Why You Should Hold on to Marsh & McLennan (MMC) Stock for Now
Marsh & McLennan Companies, Inc. MMC is well poised to grow on the back of strategic acquisitions, solid Risk and Insurance Services business and geographic expansions. Its disciplined capital-allocation strategy bodes well. However, rising expenses are affecting margins.
Marsh & McLennan — with a market cap of $84.9 billion — is a leading professional services company. It operates in the areas of risk, strategy and people. It provides insurance and consulting services to clients worldwide.
Courtesy of solid prospects, this currently Zacks Rank #3 (Hold) stock is worth holding on to at the moment.
Trend in Estimates
The Zacks Consensus Estimate for Marsh & McLennan’s 2022 earnings is pegged at $6.77 per share, indicating a 9.7% rise from the year-ago reported figure. MMC has witnessed no movement in revisions in the past week. Its earnings beat estimates in all the last four quarters, the average being 3.2%.
Marsh & McLennan Companies, Inc. Price and EPS Surprise
Marsh & McLennan Companies, Inc. price-eps-surprise | Marsh & McLennan Companies, Inc. Quote
Furthermore, the consensus mark for revenues is $20.9 billion for 2022, indicating a 5.4% rise from the year-ago reported figure.
Key Drivers
The company’s strategic acquisitions are driving growth. Its prudent choice in buying companies is enabling the company to scale operations, enter new locations and markets, expand existing businesses and products, and develop new opportunities. This helps the company to increase ownership in profitable operations. It also does not shy away from divesting less-profitable operations to boost efficiency.
Marsh & McLennan’s return on equity of 31.7% is higher than the industry average of 30.5%.
As economies around the world are recovering, MMC’s Consulting business is likely to flourish. Adjusted operating income from this unit improved 5% year over year to $1.1 billion in the first nine months of 2022. Also, sales in the Career sub-segment are expected to increase as more people join the working population.
MMC’s solid Risk and Insurance Services business is a major driver. This unit operates through Marsh and Guy Carpenter. It accounted for 61% of MMC's total revenues last year. Adjusted operating income from the segment rose 13% year over year to $2.8 billion in the first nine months of 2022. It is likely to register exponential growth in the days ahead, primarily on the back of its Marsh unit.
MMC has a disciplined capital-allocation strategy in place. Its dividend yield of 1.4% is higher than the industry average of 1.1%. This July, the board of directors approved a 10% hike in the quarterly dividend, reflecting 13 consecutive years of dividend increases.
It also has a strong repurchase program in place. The company bought back 3.1 million shares worth $500 million in the September quarter. It had $4.7 billion left under its authorization at the third-quarter end.
Key Concerns
However, there are a few factors that are holding back the stock.
Rising expenses are affecting its margins. In the first three quarters of 2022, total expenses escalated 6.5% from the prior-year comparable period’s figure. Also, MMC’s price-to-earnings ratio for the forward 12-month period is at 23.52X, above the industry average of 21.25X, making the stock overvalued. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked stocks in the broader finance space are MGIC Investment Corporation MTG, XP Inc. XP and NerdWallet, Inc. NRDS, 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.
Milwaukee, WI-based MGIC Investment is a private mortgage insurance and other products provider. The Zacks Consensus Estimate for MTG’s current year bottom line is pegged at $2.86 per share, indicating 49.7% year-over-year growth.
Headquartered in Sao Paulo, Brazil, XP is a leading financial products and services provider. The Zacks Consensus Estimate for XP’s 2022 bottom line is pegged at $1.42 per share, indicating 22.4% year-over-year growth.
Based in San Francisco, NerdWallet is a digital platform operator connecting individuals and businesses with financial products suppliers. The Zacks Consensus Estimate for NRDS’ 2022 earnings signals a 74.4% improvement from a year ago.
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