On Monday, Evercore ISI resumed coverage of Marsh & McLennan Companies, Inc. (NYSE:MMC) stock, assigning an Outperform rating and setting a price target of $242. The firm updated its stance to reflect several recent developments, including the McGriff acquisition, third-quarter results, and forward guidance.
Additionally, Evercore ISI has revised its 2025 and beyond earnings per share (EPS) estimates for Marsh & McLennan, now excluding mergers and acquisitions (M&A) intangible amortization and the net benefit credit, aligning the company's EPS more closely with cash EPS.
Marsh & McLennan completed the $7.75 billion acquisition of McGriff, previously a retail broking unit of Truist, on November 15th. This deal brings in approximately $1.3 billion in revenues and is estimated to contribute around $400 million to $500 million in EBITDA to Marsh & McLennan Agency LLC (MMA).
The acquisition is expected to be modestly accretive to EPS in 2025 and more significantly in 2026, although it may be slightly dilutive compared to previous estimates due to anticipated lower share repurchases. The transaction was financed through $7.25 billion in debt, secured in the fourth quarter at an average rate of approximately 5%, and cash on hand.
Since the acquisition announcement on September 30th, Marsh & McLennan's stock has underperformed its peers by 5%. This performance dip is believed to be partly due to the limited financial details disclosed for such a significant transaction and the potential for producer attrition, a common occurrence with deals of this scale. While the McGriff operations will be integrated into the MMA segment, there is a risk of more revenue leakage initially due to its positioning in the upper middle market.
Despite these concerns, Evercore ISI suggests that the increased scale resulting from the acquisition—projected to reach $28 billion in revenues by 2026—could offer broader upside to margins once the integration process is completed.
The firm's EPS estimates for Marsh & McLennan have been slightly raised, taking into account the positive impact of excluding deal-related amortization, which is somewhat counterbalanced by the removal of the net benefit credit and the modest dilution from reduced share repurchases. The new price target of $242 is based on rolling forward to one-year forward next twelve months (NTM) estimates, using a 22.5x cash price-to-earnings (P/E) ratio and a 16.5x enterprise value/EBITDA ratio.
In other recent news, Marsh McLennan (NYSE:MMC) has finalized its acquisition of McGriff Insurance Services, incorporating McGriff's team of over 3,500 into the Marsh McLennan Agency. The move aims to enhance the company's services in the middle market sector. Marsh McLennan also reported a 5% increase in underlying revenue and a 12% rise in adjusted operating income for Q3 2024, with an adjusted EPS of $1.63 and consolidated revenue of $5.7 billion. Furthermore, the company issued $7.25 billion in senior notes.
Analyst firms, including Keefe, Bruyette & Woods, BMO Capital Markets, RBC Capital, and Goldman Sachs, have updated their price targets and ratings for Marsh McLennan. These adjustments reflect their analysis of the company's recent performance and future prospects. However, the company's strategic focus is shifting towards the McGriff acquisition, expected to be modestly accretive to the adjusted EPS in its first year. These are among the recent developments for Marsh McLennan.
InvestingPro Insights
To complement Evercore ISI's analysis, InvestingPro data offers additional insights into Marsh & McLennan's financial position and market performance. The company's market capitalization stands at an impressive $111.89 billion, reflecting its significant presence in the insurance industry. MMC's P/E ratio of 27.77 and Price to Book ratio of 8.17 suggest that investors are willing to pay a premium for the company's shares, which aligns with Evercore's optimistic outlook.
InvestingPro Tips highlight MMC's strong dividend history, having raised its dividend for 15 consecutive years and maintained payments for 54 years. This consistent dividend growth, coupled with a current yield of 1.43%, underscores the company's commitment to shareholder returns. The stock's trading near its 52-week high further supports Evercore's bullish stance.
The company's financial health is evident in its robust revenue of $23.95 billion over the last twelve months, with a 7.84% growth rate. An operating income margin of 27.21% demonstrates MMC's operational efficiency, which could be further enhanced by the McGriff acquisition as suggested in the article.
For investors seeking more comprehensive analysis, InvestingPro offers 12 additional tips that could provide deeper insights into MMC's investment potential.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.