Updated Research Report on Willis Group - Analyst Blog

On April 17, 2014, we issued an updated research report on Willis Group Holdings plc WSH.

Organic growth in commissions and fees, which forms the major component of Willis Group's revenues, continues to post positive numbers. The year 2013 witnessed the company achieving mid-single-digit organic growth across all three segments since 2006. With solid retention levels and new business growth, we expect the company to boost revenues. With acquisitions on track, Willis Group's inorganic growth story also seems impressive.

In addition, Willis Group has consistently tried to enhance its shareholder value via dividend increase as well as share buybacks. The board, in Feb 2013, authorized a 7.1% dividend hike and announced its intentions to repurchase $200 million shares in 2014.

Willis Group's operating expenses had been on a rising trend over the last few years. However, thanks to cost reduction initiatives, expenses declined 19% in 2013 inducing an operating margin of 19% – a sheer turnaround from the operating loss incurred in the previous year. Willis Group expects to realize an annual cost savings of $25–$30 million on the back of its cost reduction initiatives.

Willis Group has been experiencing a decline in investment income over the past few years – a trend that continued through 2011 and into 2013, due to lower average interest rates. We expect investment income to remain under pressure in the near term as interest rates have continued to experience declines across the globe. Nevertheless, Willis Group's forward hedging program to some extent offset the effect of low interest rates.

With respect to earnings performance, the insurance broker delivered positive and negative surprises in 2 quarters each with an average miss of 0.6%. Our proven model shows that Willis Group  will likely fail to meet expectation this quarter as well as it has a Zacks Rank #4 (Sell) and an Earnings ESP of -2.11%.

Other Stocks to Consider

Better-ranked insurance brokers worth reckoning are Erie Indemnity Company ERIE, Marsh & McLennan Companies, Inc. MMC and Validus Holdings, Ltd. VR. All these stocks sport a Zacks Rank #2 (Buy).