These KBW Analysts Like Willis Group

Willis Group Holdings PLC WSH announced its second quarter results Tuesday afternoon. The company reported earnings of $0.58 per share on revenue of $922 million, versus the Street’s consensus estimate of $0.54 per share and $970.79 million.

KBW analysts Meyer Shields and Seth Canetto reiterated an Outperform rating and $54.00 price target on the stock. Earnings came in-line with the firm’s expectations, “reflecting disappointing revenues but solid underlying expense controls.”

They believe “organic expense growth will steadily trail organic revenue growth, producing steady margin throughout 2015.” They also remain bullish about the product diversification and enhanced debt leverage expected from the pending merger with Towers Watson & Co TW.

The main drivers of the delta to Shields and Canetto’s estimate include:

• Commissions and fees (-$0.03/share) below expectations
• An adjusted operating margin (-$0.08/share) that was lower than expected

This was offset by:

• “Lower-than-expected ‘other’ expenses (+$0.09/share) – predominantly foreign currency revaluation”
• Investment and other income (+$0.01/share) above expectations
• Equity in affiliates’ earnings (+$0.01/share) that were higher than analysts had projected
• A lower-than-anticipated tax rate (+$0.02/share)

Bottom Line

The analysts conclude that, “assuming that the $18 million foreign currency revaluation appropriately belongs in operating EPS” (they are not suggesting otherwise, but they need to understand this line item better), they think “the in-line operating results and positive margin outlook will outpace the disappointing organic growth rate, and modestly boost the shares on Wednesday.”

Willis Group Holdings’ stock was up about 1 percent on Wednesday.