On Jul 3, we issued update research report on Willis Group Holdings plc (WSH).

Willis Group envisions operational efficiencies through an operational improvement program invests in new growth avenues and strengthens its client services. These would save $5 million in 2014, $45 million in 2015, $135 million in 2016, $235 million in 2017 and $300 million annually thereafter in costs for the company.

Willis Group had undertaken a cost-savings initiative earlier to enhance its profitability. Under this initiative, management reviewed the organizational design and reduced headcount. Willis Group expects to realize an annual cost savings of $25–$30 million. Continuous efforts on part of the company to control costs are expected to help it enhance margin expansion, going forward.

Organic growth in commissions and fees, a major component of Willis Group’ revenues, continues to aid its results. The insurance broker also travels the inorganic route to fortify its operational results. It will acquire a 75% equity interest in Max Matthiessen for $205 million to strengthen its Swedish presence. It acquired specialist broker Charles Monat Limited in May tis year following regulatory approvals from the Monetary Authority of Singapore. These acquisitions will help the company write more business, going forward, thereby driving the top line.

Willis Group has been strengthening its balance sheet by increasing cash balance and lowering debt levels. The debt cap ratio has also been improving over years. The company also increased its dividend at a 5-year CAGR of 2.9%. Its dividend yield betters the industry average. The company intends to buy back $200 million shares in 2014 and is left with $755 million under the current authorization.

However, the low interest rate environment continues to weigh on the company’s investment results, though its forward hedging program comes as a respite.

With respect to earnings performance, the company missed the Zacks Consensus Estimate in three of last four quarters with an average negative surprise of 4.6%. Estimates witnessed downward revisions over the last 60 days with the Zacks Consensus Estimate losing a penny each for 2014 and 2015. The same is currently pegged at $2.65 for 2014 and $2.92 for 2015. Nonetheless, the expected long-term growth rate for the stock is 9.1%.

Willis Group presently carries a Zacks Rank #3 (Hold).

Other stocks to consider

Better-ranked insurance brokers include Cninsure Inc. (CISG), Blue Capital Reinsurance Holdings Ltd. (BCRH) and Erie Indemnity Company (ERIE). While Cninsure sports a Zacks Rank #1 (Strong Buy), Blue Capital Reinsurance and Erie Indemnity carry a Zacks Rank #2 (Buy).

Read the Full Research Report on WSH
Read the Full Research Report on ERIE
Read the Full Research Report on CISG
Read the Full Research Report on BCRH


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