Bull And Bear Case Scenarios For Willis Towers Watson Ahead Of Analyst Day

Keefe, Bruyette & Woods reiterated its Outperform rating and $128 target price on Willis Towers Watson PLC WLTW while presenting its bull and bear case scenarios for the stock ahead of its analyst day on September 29.

"We see risk/reward skewed more to the upside with the Analyst day as a positive catalyst, although we acknowledge volatility will likely remain elevated in the near term," analyst Quentin McMillan wrote in a note.

The analyst's bull case scenario puts WLTW's value at $175. Conversely, the bear thesis estimates WLTW's value at $108.

The bull target of $175 is based on 15x 2018 estimated EPS of $11.67, while bear target of $108 is based on 13x 2018 estimated EPS of $8.28.

Under the bull case, McMillan assumes the following:

1) "a meaningful portion of the $325m OIP savings falls to bottom line ($160m);

2) "strong FCF generation drives repurchases of 3.5%/4.7% in 2017/2018";

3) "merger cost synergies of $125m and tax synergies of $75m are achieved";

4) "$275m of merger revenue synergies (below midpoint of targeted $375-675m range exiting 2018) achieved on a slightly lowered 2.5% organic base, driving total +4.0/+4.5% organic growth in 2017/2018";

5) "stronger earnings drive 3.5%/4.7% 2017/2018 repurchases."

On the other hand, the bear case assumes:

1) "0% organic growth in 2017-2018";

2) "no revenue synergies and no further M&A growth";

3) "merger expense synergies of $100m and $75m tax synergies are achieved";

4) "salary & benefits are held flat given organic headwinds and adj. EBITDA margin roughly flat with 2015 levels at 23.5%";

5) "weaker earnings drive lower repurchases of 2.3%/2.6% of outstanding in 2017-2018."

"We expect the Analyst day should be a positive catalyst for shares as management provides additional clarity, setting current and future expectations for the stock," McMillan added.