It has been about a month since the last earnings report for Arthur J. Gallagher (AJG). Shares have added about 3.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Arthur J. Gallagher due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Arthur J. Gallagher Q4 Earnings Top, Revenues Miss
Arthur J. Gallagher reported fourth-quarter 2020 adjusted net earnings of 88 cents per share, which beat the Zacks Consensus Estimate by 14.3%. Moreover, the bottom line increased about 51.7% on a year-over-year basis.
The company’s performance was driven by lower expenses, higher adjusted revenues, and strong margin expansion across Brokerage as well as Risk Management segments.
Operational Update
Total revenues were $1.7 billion, down 1.2% year over year, primarily due to higher commissions, fees, and supplemental and contingent revenues. Moreover, the top line missed the Zacks Consensus Estimate by 0.2%.
Arthur J. Gallagher’s total expense decreased 4.1% year over year to $1.6 billion, attributed to lower compensation.
Adjusted earnings before interest, tax, depreciation and amortization and change in estimated acquisition earnout payables (EBITDAC) grew 26.4% from the prior-year quarter to $368 million.
Segment Results
Brokerage: Adjusted revenues of $1.2 billion increased 4.5% year over year on higher commissions, fees, and supplemental and contingent revenues.
Adjusted EBITDAC climbed 29.6% from the prior-year quarter to $373 million while margin expanded 580 basis points (bps) to 29.9%.
Risk Management: Adjusted revenues were down 0.1% year over year to $216.4 million.
Adjusted EBITDAC increased 11.3% year over year to $41.4 million while margin expanded 190 bps to 19.1%.
Corporate: EBITDAC was negative $46.4 million compared with negative $33.9 million in the year-ago quarter.
Financial Update
As of Dec 31, 2020, total assets were $22.3 billion, up 13.7% from the 2019-end level.
Cash and cash equivalents at year-end increased 36.2% from the 2019 level to $3.6 billion.
Shareholders’ equity increased 19.5% from Dec 31, 2019 to $6.2 billion as of Dec 31, 2020.
Acquisition Update
In 2020, the company closed 27 acquisitions, with estimated annualized revenues of $251.4 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Arthur J. Gallagher has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Arthur J. Gallagher has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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