July 25, 2024

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Bullish Near-Term Prospects for Insurance Brokerage Industry

The Zacks Insurance – Brokerage  industry comprises companies that primarily offer insurance and reinsurance products and services. Insurance brokers act on behalf of their clients and offer advice keeping in mind clients’ interests against brokerage fees. Some of these companies are also involved in providing risk management, third-party administration and managed health care services.

Technavio analysts forecast the global insurance brokerage market to grow at a CAGR of over 5% during the forecast period (2018-2022), according to their latest market research report.

Here are the industry’s three major themes:
•   The operational results of the industry players are affected directly by its clients’ level of business activity, which in turn, depends on the extent of economic activity in the industries and markets that they serve. The disruption caused by the U.S.-China trade war and the current COVID-19 pandemic rendered severe volatility to the stock market and recessionary fears across the globe. While it is difficult to predict the magnitude of impact of any deterioration in global economic conditions on the industry at this particular juncture, any significant reduction or delay by its clients in purchasing services or insurance or making payment of premiums could leave a material adverse impact on the industry’s financial standing as well as its operating performance.
•    The insurance brokerage industry is witnessing fast-paced consolidation. Mergers and acquisitions (M&A) in this space have been rife in recent years. The industry has been traditionally fragmented with a number of small players. One of the factors driving mergers and acquisitions is the need of the companies to become specialized in their businesses. Also, small brokerage firm owners have to take big decisions about the future course of action as most of them belong to the baby bomber era and are ageing.  Some other factors driving M&A are the interest that private equity is showing in this sector, growing competition and a lack of organic growth.
•    To maintain competitiveness in the industry, players are embracing technological change. The threat comes from new entrants, such as technology companies, Insurtech start-up companies and others. These players are focused on using technology and innovation, including artificial intelligence, robotics and blockchain, to simplify and improve client experience, increase efficiencies, alter business models and bring about other disruptive changes in industries in which the existing players operate. While investments in technology help increase business efficiency, expenses associated with such investments increase operating costs.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Insurance – Brokerage industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #32, which places it in the top 13% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, signifies solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 13% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are upbeat in this group’s earnings growth potential.
Before we present a few insurance broker stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500 and Sector

The Insurance Brokerage Industry has performed better than the Zacks S&P 500 Composite and the broader Zacks Finance Sector over the past year.

The industry has declined 2.9% compared with the S&P 500’s  and the broader sector’s plunge of 10.2% and 23.2%, respectively.

One-Year Price Performance

Industry’s Current Valuation

On the basis of the trailing 12-month price-to-book (P/B), which is commonly used for valuing insurance stocks, the industry is currently trading at 5.09X compared with the S&P 500’s 3.48X and the sector’s 1.9X.

Over the last five years, the industry has traded as high as 6.77X, as low as 3.32X and at the median of 4.52X.

Trailing 12-Month Price-to-Book (P/B) Ratio

Trailing 12-Month Price-to-Book (P/B) Ratio

Bottom Line

Technology continues to be a very high priority for the industry players, which will enable them to better use data and digital capabilities and this is possible largely through solid partnerships with appropriate tech firms.

On the M&A front, we expect competition will remain aggressive until interest rates increase materially. The industry is likely to see increased interest from private equity players for mergers and acquisitions Strategic players will buy businesses that make sense financially and fit culturally.
Also a hard insurance market with rates firming will provide a growth platform for the insurance brokerages.  

One stock in the space currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

eHealth, Inc. (EHTH): is the leading online source of health insurance for individuals, families and small businesses. It came up with an average positive earnings surprise of 182.7% in the trailing four quarters.  The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 25.8% upward over the last 60 days.

Price and Consensus

Here we are presenting a Zacks Rank #2 (Buy) stock that appears to be a solid investment proposition.

Aon plc (AON): The Zacks Consensus Estimate for 2020 EPS indicates a rise of 13% from the year-ago reported figure compared with its industry’s growth of 5.4%. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement and health delivered a positive earnings surprise of 0.62%, on average, in the last four quarters.

Price and Consensus

Willis Towers Watson PLC (WLTW): The Zacks Consensus Estimate for 2020 EPS indicates an 8.7% increase from the prior-year reported number compared with its industry’s 5.4% rise. This London, United Kingdom-based provider of advisory and solutions based on risk, retirement and health came up with a positive earnings surprise of 0.65%, on average, in the last four quarters.

Price and Consensus

Marsh & McLennan Companies, Inc. (MMC) : This New York based provider of advice and solutions to clients in the areas of risk, strategy, and people worldwide delivered average positive surprise of 5.42% in the last four quarters. The company has an estimated long-term earnings growth rate of 13.2%. The Zacks Consensus Estimate indicates 8.2% year-over-year increase for 2020.

Price and Consensus

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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Willis Towers Watson Public Limited Company (WLTW) : Free Stock Analysis Report
Marsh & McLennan Companies, Inc. (MMC) : Free Stock Analysis Report
eHealth, Inc. (EHTH) : Free Stock Analysis Report
Aon plc (AON) : Free Stock Analysis Report
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