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This Insurance Broker Has Outperformed the S&P 500 Over the Past Decade: Should You Buy It?

By Courtney Carlsen – Jun 30, 2021 at 5:01AM

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Marsh & McLennan is an established broker and consultant with a history of steady growth.

When it comes to underappreciated winners, Marsh & McLennan (MMC -0.59%) is one stock that has outperformed the broader market for over a decade. The insurance broker has a solid history of steady revenue growth and expense management, and investors have been rewarded as a result. Over the past 10 years, the company has provided investors with gains of more than 350% at Tuesday's prices, compared to the S&P 500's 225% during the same time period.

Marsh & McLennan is not limited to insurance brokerage. While this is a big source of revenue, the company is also a leading provider of consulting services -- helping workplaces tackle things related to health, wealth, and career management. The company is well-positioned with billions in cash it looks to put to work in order to add more value for investors. Here's what you should know about Marsh & McLennan.

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Image source: Getty Images.

Steady growth through brokerage and consulting

Marsh & McLennan is a leading provider of advisory and consulting services related to risk, strategy, and workplace issues. The company is made up of two segments: risk and insurance services, which account for 60% of its revenue, and consulting, which makes up the remainder.

The insurance broker and consultant has maintained steady revenue growth and expense management over the years. In the past decade, Marsh & McLennan has grown revenue at a 5.2% compound annual growth rate, while adjusted operating income has grown 10.6% over that same time period. And despite the pandemic's effects on businesses and spending in 2020, the company still saw revenue grow 3.4%.  

The solid performance has continued into the first quarter, with the company posting revenue of $5.1 billion -- a 9.3% growth from the same quarter last year. Operating expenses increased a modest 4%, and bottom-line growth benefited with its diluted earnings per share (EPS) growing 29.1% compared to last year.  

A trusted advisor to many

The company has positioned itself as a leader in providing advisory services across its multiple businesses. Within Marsh & McLennan's risk and insurance segment, it has its Marsh and Guy Carpenter divisions, which have performed well despite increasing effects from natural catastrophes. Premiums in the insurance market have risen as a result, benefiting the company.  

According to its Marsh Global Insurance Index, premiums paid for property and casualty (P&C) coverage have increased 18% year over year, and P&C insurers have increased rates for 14 quarters straight. In the past five years, the company has seen its risk and insurance revenue grow at a steady 8.5% compound annual growth rate, thanks to this hardening insurance market.  

The company also provides consulting services through its Mercer and Oliver Wyman divisions. Through these, it advises clients on climate change issues and the transition to a lower-carbon economy. It also consults workplaces on topics related to the gender pay gap, diversity, and the use of technology to improve workplace experience. This division has also seen steady growth, at a slightly slower rate, growing at a 5.8% compound annual growth rate over the past five years.  

Management sees 2021 exceeding expectations. In its last earnings call, management said it expects revenue growth to be on the high end of its 3% to 5% growth rate guidance, and possibly higher.  

$3.5 billion in cash to put to work for investors

In April earlier this year, the company announced the acquisition of PayneWest Insurance, one of the largest independent agencies with 26 locations in Idaho, Montana, Oregon, and Washington. This acquisition helps add to the company's geographic footprint, adding 700 employees and giving it a hub in the Northwest region of the U.S. This acquisition is one of over 130 Marsh & McLennan has made in the past seven and a half years.  

Competition is heating up for acquisitions in the industry as well. There has been a flurry of acquisitions this year among competitors, with Arthur J. Gallagher & Co., Brown & Brown, and Aon all making a splash adding various benefits or insurance companies.  

Management at Marsh & McLennan continues to look for expansion opportunities as well. During its earnings call, CFO Mark McGivney said the company is looking to deploy $3.5 billion in capital through dividends (the stock currently yields 1.3%), debt reduction, acquisitions, and share repurchases. McGivney said that it prefers acquisitions over share repurchases, which it sees as a better value to investors over the long haul.

Marsh & McLennan has been a solid performer for years now, handily beating the S&P 500 index in the past decade. This solid performance has continued in 2021, with the insurance broker and consultant outperforming the S&P 500 20% to 14% year to date. The company has a strong foothold in the brokerage and advising space, and is a solid stock worth considering for exposure to the financial sector.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Marsh & McLennan Companies, Inc. Stock Quote
Marsh & McLennan Companies, Inc.
MMC
$150.06 (-0.59%) $0.89
Aon plc Stock Quote
Aon plc
AON
$271.49 (-1.37%) $-3.78
Arthur J. Gallagher & Co. Stock Quote
Arthur J. Gallagher & Co.
AJG
$169.96 (-0.49%) $0.84
Brown & Brown, Inc. Stock Quote
Brown & Brown, Inc.
BRO
$60.17 (-0.12%) $0.07

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