Brown & Brown's Price Is Up, But Value Isn't Much Different

seekingalpha11-05

YTD results show Brown & Brown executing on its continual growth.Lower rates invite competition from private equity in M&A, but most of 2024's growth has been organic.Impacts of Hurricanes Helene and ...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2481107145?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/917884914/image_917884914.jpg","is_english":true,"pubTime":"2024-11-05 12:24","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2481107145","market":"hk","top_or_hot":-1,"title":"Brown & Brown's Price Is Up, But Value Isn't Much Different","media":"seekingalpha","content":"<div>\n<p>YTD results show Brown & Brown executing on its continual growth.Lower rates invite competition from private equity in M&A, but most of 2024's growth has been organic.Impacts of Hurricanes Helene and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4732974-brown-and-browns-price-is-up-but-value-isnt-much-different\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Brown & Brown's Price Is Up, But Value Isn't Much Different</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nBrown & Brown's Price Is Up, But Value Isn't Much Different\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-05 12:24 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732974-brown-and-browns-price-is-up-but-value-isnt-much-different><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>YTD results show Brown & Brown executing on its continual growth.Lower rates invite competition from private equity in M&A, but most of 2024's growth has been organic.Impacts of Hurricanes Helene and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4732974-brown-and-browns-price-is-up-but-value-isnt-much-different\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU2108987350.USD","symbol_name":"UBS (LUX) EQUITY SICAV GLOBAL OPPORTUNITY SUSTAINABLE (USD) \"P\" (USD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4732974-brown-and-browns-price-is-up-but-value-isnt-much-different","article_id":"2481107145","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/917884914/image_917884914.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481107145","pubTimestamp":1730780688,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"I figured it was time to circle back, reassess, and see if the opportunity had changed. While there was some tweaks to me made to the valuation, my long-term perspective of the company has not changed, and I continue to rate it a Hold. YTD Results As Q1 results were released after my first article was written, we have all the progress of 2024 to consider. Q3 2024 Earnings Release To start, the company continued its growth, with revenues for the nine months ending September up about 12% year-over-year. Q3 2024 Earnings Release As I mentioned before, they regularly experience growth through M&A, but organic revenue was up by 9.5%, showing that they aren't simply dependent on this. Throughout the first three quarters, they have acquired 20 new businesses, whose annual revenues together account for $36.5M. Q3 2024 Earnings Release These payments represented an outflow of $118M. Capital-light as their agency business model is, M&A is their primary form of capex, exceeding additions to their","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU2108987350.USD":"UBS (LUX) EQUITY SICAV GLOBAL OPPORTUNITY SUSTAINABLE (USD) \"P\" (USD) ACC","BK4588":"碎股","BRO":"布朗保险经纪","BK4173":"保险经纪商","BK4585":"ETF&股票定投概念"},"translate_title":"Brown&Brown的价格上涨了，但价值相差不大","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BRO":0.9},"content_text":"YTD results show Brown & Brown executing on its continual growth.Lower rates invite competition from private equity in M&A, but most of 2024's growth has been organic.Impacts of Hurricanes Helene and Milton may moderate some of the year's growth from contingent commissions.The long-term outlook, however, remains positive.AndreyPopov  Brown & Brown (NYSE:BRO) is a multi-line insurance agent that I originally covered back in April. I dubbed it a \"super-compounder,\" given its long history of profitable growth, driven by frequent M&A activity but felt that its price was a fair one, rating it a Hold. BRO YTD Price History (Seeking Alpha) Since then, the company has had three quarters of earnings results, and the stock is up about 27%! I figured it was time to circle back, reassess, and see if the opportunity had changed. While there was some tweaks to me made to the valuation, my long-term perspective of the company has not changed, and I continue to rate it a Hold. YTD Results As Q1 results were released after my first article was written, we have all the progress of 2024 to consider. Q3 2024 Earnings Release To start, the company continued its growth, with revenues for the nine months ending September up about 12% year-over-year. Q3 2024 Earnings Release As I mentioned before, they regularly experience growth through M&A, but organic revenue was up by 9.5%, showing that they aren't simply dependent on this. Throughout the first three quarters, they have acquired 20 new businesses, whose annual revenues together account for $36.5M. Q3 2024 Earnings Release These payments represented an outflow of $118M. Capital-light as their agency business model is, M&A is their primary form of capex, exceeding additions to their own property, plant, and equipment. On that note, the YTD cash flow statement shows free cash flow up from $674M to $811M, an increase of 20%! This was primarily due to higher operating cash flows but also lower capex. Future Outlook There are a few new things to consider for B&B since I last discussed it in April: the arrival of rate cuts, the prospects of M&A, and the impacts of the recent storm season. I'll go over these and then revisit my valuation. fred.stlouisfed.org First to mention is that interest rates are finally going down. After peaking earlier this year, the Federal Reserve finally issued a 50 BPS cut in September. While many eyes are on the results of the 2024 election this week, the next FOMC meeting (and likely another rate cut) will occur the very next day. During the Q3 earnings call, management spoke to the impact this poses to M&A: On the M&A front, competition for high-quality businesses remained consistent with the first half of the year. While the number of acquisitions by private equity backers decreased as interest rates rose, we are now starting to see a higher levels of activity, as interest rates are beginning to decrease. I suspect that opportunities to pick up new businesses at good prices will be fewer but will not disappear entirely. Moreover, M&A necessarily becomes more challenging as B&B continues to grow. With the recent impact of storms, such as Hurricanes Helene and Milton, there could be a marginal impact to revenue, as some of their deals allow them to share the underwriting profits with the risk bearers (contingent commissions). Management commented: ...we saw and had continued to see a lot of auto losses in the storms, particularly Helene, but Milton, as well. So you've got a car in a garage and flood waters come up and the car dies. Okay, so it doesn't work anymore and I'm not even talking about electric vehicles... As well as: So you will see probably some meaningful year-over-year change in there. I don't know the magnitude of it right now, just we need some claims development to occur. Thus, in spite of the business growth that occurred, year-over-year results for all of 2024 might not be quite as high once all the damage claims are counted. Both Helene and Milton were very powerful storms, and the bump to earnings could be substantial. Despite this, management remains confident in the face of setbacks, as they also noted: As we mentioned, before, moderate rate increases or decreases for one line of business will generally not have a material impact on the results of our company in total. In order to deliver consistently strong and industry-leading financial performance, we focus on diversification across lines of coverage, geography, industry and customer segments. This is a view that I share. B&B underwrites several kinds of insurance products, and this protects them from temporary weakness in any one area. Moreover, since they are the agents and not the insurers, the risk ultimately doesn't fall to them. They stand to lose contingent commissions, but aren't liable for the damages. I think the outlook, however, is mostly positive for them. Reports from earlier this year spoke to the acquiescence of state governments on rate ceilings, with many finally allowing insurers to adjust to inflated property costs and set higher prices for policies. As the Fed began cutting rates in response to successfully curbing inflation, I expect both B&B and their partners to be in a better operating environment going forward. Valuation I'll now provide a newer valuation for BRO, once again using a Discounted Cash Flow model. Last time I made the following two assumptions  12% CAGR of FCF for the next decade Terminal multiple of 10  With the following explanation: There's also nothing to indicate that the 12% CAGR will slow down, given the ample M&A opportunities and management's history with capital allocation. Lastly, a terminal multiple of 10 seems like a reasonable minimum for a company with these qualities Where I will differ is in using $1.2B as my baseline for FCF given the 20% YoY increase we've seen so far, but I've moderated a bit to account for potential impacts to full-year revenues (given the storms). Author's calculation Priced for a 10% discount rate (typical return of the market), this makes the intrinsic value a market cap of $27.6B, for over $96 per share. This is up from my previous valuation of about $85, but it remains below the closing price last Friday of $104. At that price, long-term returns may well be positive, but it lacks a compelling margin of safety in the event of additional setbacks. Conclusion  Brown & Brown will continue to do in 2024 what is has done for several decades: acquire and compound, profitably. While recent storms and more competitors in M&A from private equity may slow this in the near-term, the long-term foundations of the business, diversified into many insurance lines, are intact. That's why I remain confident that the business is a relatively safe Hold, as they come, only needing a better price before it's a Buy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481107145"}