KBW Downgrades Brown & Brown To Market Perform Following Q1 Earnings

In a report published Wednesday, Keefe, Bruyette & Woods analysts downgraded the rating on

from Outperform to Market Perform, while reducing the price target from $36 to $34. "Our downgrade reflects the cumulative earnings impact of several revenue challenges expected in the balance of 2015, including revenues lost following Washington State regulatory changes, likely lower contingent commissions y/y, lower expected revenues from acquisitions, and weaker U.S. economic outlook than previously anticipated," the analysts stated. The deterioration of the US economic outlook in recent months is also likely to limit Brown & Brown's organic growth and margin expansion prospects in 2015. "BRO's sustained financial discipline in the face of intensifying competition from private equity and other acquirers of smaller brokers is absolutely the best of all possible responses, but still implies lower revenues and earnings from acquisitions compared to our previous forecast," the analysts stated. The quarterly acquired revenue forecasts have been reduced to $20 million for the balance of 2015, and $25 million per quarter in 2016. The EPS estimates for 2015 and 1016 have been reduced from $1.80 to $1.73 and from $2.00 to $1.90, respectively. The revised estimates reflect less organic growth, lower contingent commissions and lower EBITDAC margins, partly offset by share repurchases. "Despite the discount to peers, we believe the shares are fairly valued given decelerating insurance rates, a somewhat less-favorable domestic economic outlook, and lower contingent commission expectations than we'd previously expected," the analysts explained.