What a brutal six months it’s been for Brown & Brown. The stock has dropped 30.1% and now trades at $65.34, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Following the drawdown, is now an opportune time to buy BRO? Find out in our full research report, it’s free.
Why Is Brown & Brown a Good Business?
With roots dating back to 1939 and operations spanning 44 U.S. states and 14 countries, Brown & Brown (NYSE: BRO) is an insurance brokerage and risk management firm that markets and sells insurance products across property, casualty, and employee benefits sectors.
1. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Brown & Brown’s revenue to rise by 21.4%, an improvement versus its 17.7% annualized growth for the past five years. This projection is eye-popping and indicates its newer products and services will spur better top-line performance.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Brown & Brown’s EPS grew at 20.5% compounded annual growth rate over the last five years, higher than its 17.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Brown & Brown has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 23.8% over the last five years.
Final Judgment
These are just a few reasons Brown & Brown is a high-quality business worth owning. With the recent decline, the stock trades at 14.4× forward P/E (or $65.34 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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