What happened
Brown & Brown (BRO -0.22%) saw its stock price jump 12.1% in April, according to S&P Global Market Intelligence. As of May 4, Brown & Brown was trading at about $64 per share, up roughly 12.5% year to date (YTD).
The stock outperformed the major market indexes, as the S&P 500 was up 1.5%, the Dow Jones Industrial Average climbed 2.5%, and the Nasdaq Composite was essentially flat in April.
So what
Brown & Brown, an insurance broker, posted first-quarter earnings last month that beat revenue and earnings estimates and propelled the stock price higher.
Revenue was up 23.4% compared to the first quarter of 2022 to $1.1 billion, while net income increased 7.8% to $236 million, or $0.83 per share. The bulk of the revenue came from commissions and fees, which were up 22.5% to $1.1 billion, while investment income accounted for $7 million. Expenses rose about 28% year over year to $822 million, with jumps in operating expenses, compensation, and interest expenses.
Brown & Brown also got a bump earlier in the month when it closed on its acquisition of Highcourt Breckles Group (HBG), a Toronto-based insurance brokerage and risk consulting firm. HBG will operate within Brown & Brown's retail segment and expand the company's presence in the Canadian market.
Now what
Following its solid earnings report, Brown & Brown got an upgrade from Citigroup, as analyst Michael Ward upgraded the stock to buy from neutral. He also increased the price target to $69 per share, from $62.
Ward said he favors property and casualty brokers in this market to underwriters, given their reduced balance sheet risk. He said that "idiosyncratic challenges," those outside of its control, from dealer services headwinds to Hurricane Ian disruption, have caused the Street to discount its earnings power relative to its peers, reported The Fly. He sees current growth estimates for the company as conservative.
The stock has a forward price-to-earnings ratio of 25, up from 22 at the start of the year. But it has proven to be an excellent all-weather stock, largely recession-proof, as one of the oldest, most established insurance brokers in an essential industry, regardless of the state of the economy. Over the years, it has outperformed in down markets.
And over the past 10 years, Brown & Brown stock has posted an average annual return of 15% as of May 4, while annual earnings have increased at about a 13% clip. If you are looking for some ballast to offset some downside risk in your portfolio, this is not a bad option.