On Thursday, BMO Capital Markets sustained its optimistic stance on shares of Arthur J. Gallagher & Co. (NYSE: AJG), a global insurance brokerage and risk management services firm, by raising its price target to $332 from the previous $325. The firm maintained an Outperform rating on the stock.
The adjustment comes in the wake of Gallagher's acquisition of Assured Partners (AP), which BMO Capital views as a strategic move providing the necessary larger-scale mergers and acquisitions to continue investing its free cash flow into high-return opportunities.
The analyst believes that there is a slight potential for Gallagher to surpass its synergy target of $160 million, particularly on the revenue side. With a market capitalization of $62.25 billion and strong revenue growth of 15.8% in the last twelve months, AJG has demonstrated its ability to execute on strategic initiatives.
In light of the AP deal, BMO Capital has revised its fourth-quarter 2024 and full-year 2025 and 2026 estimates for Arthur J. Gallagher. The projections now reflect a -5% adjustment for the fourth quarter of 2024, a +5% increase for 2025, and a +8% rise for 2026.
These revisions account for the financing through debt and equity issuances in the fourth quarter of 2024, an expected closure of the transaction by mid-first quarter of 2025, and anticipated revenue synergies of approximately $70 million, which is above the management's guidance of $60 million.
InvestingPro subscribers can access detailed financial health metrics, with AJG maintaining a "GOOD" overall financial health score and showing impressive dividend consistency with 40 consecutive years of payments.
The analyst also highlighted that their first-year post-deal earnings per share (EPS) estimate for Arthur J. Gallagher sees an approximate 9% increase, and the 2026 earnings before interest, taxes, depreciation, and amortization (EBITDA) forecast is around 19% higher than the consensus. This optimistic outlook underpins the new price target of $332 for the company's stock.
The company's current EBITDA stands at $3.38 billion, with analysts expecting continued profitability this year, as revealed by InvestingPro's comprehensive analysis available in the Pro Research Report.
In other recent news, Arthur J. Gallagher & Co. has completed a significant common stock offering and is in the process of a multi-tranche notes offering. The company also announced the acquisition of several firms, including AssuredPartners in a deal valued at $13.45 billion, and Sheila J. Butler & Company, enhancing its benefits consulting capabilities in Georgia. These acquisitions are part of the company's broader strategy to expand its market presence and service offerings.
Financially, Arthur J. Gallagher reported a 13% increase in revenue across its Brokerage and Risk Management segments. Analysts project organic growth in both these segments for the year 2025.
Keefe, Bruyette & Woods analyst Meyer Shields raised the 12-month price target for Arthur J. Gallagher to $292, while Truist Securities maintained its Hold rating with a target price of $275.00. BMO Capital Markets raised their price target for the company's shares to $325.00, and Goldman Sachs moved the company from a "Buy" to a "Neutral" rating.
These recent developments highlight Arthur J. Gallagher & Co.'s ongoing strategy to enhance its service offerings and expand its market presence. However, the integration of AssuredPartners, given its rapid inorganic growth and large size, may present a higher execution risk than AJG's typical acquisitions. The analyst notes from BMO Capital suggest that investors might seek a discount due to the perceived risks associated with the deal.
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