Willis Towers Rallies 37.3% in a Year: What's Driving the Stock?

Core Viewpoint - Willis Towers Watson (WTW) has outperformed its industry and the broader market over the past year, driven by strategic initiatives and solid growth projections [1][2]. Performance Overview - WTW shares have increased by 37.3% over the past year, compared to the industry's growth of 26.3%, and the Finance sector and S&P 500 index returns of 33.6% and 33.7%, respectively [1]. - The company has a market capitalization of $29.49 billion, with an average trading volume of 0.4 million shares over the last three months [1]. Growth Drivers - The growth has been fueled by new business, strategic acquisitions, geographic diversification, strong customer retention, and a robust capital position [2]. - WTW's earnings surprise history shows consistent performance, beating estimates in the last four quarters with an average surprise of 7.06% [4]. Future Projections - The Zacks Consensus Estimate for WTW's 2024 earnings per share indicates a year-over-year increase of 13.9%, with revenues projected at $9.94 billion, reflecting a 4.8% improvement [5]. - For 2025, earnings per share and revenues are expected to grow by 12.4% and 5%, respectively, compared to 2024 estimates [5]. Strategic Focus - WTW's growth strategy emphasizes improving operating margins, increasing free cash flow conversion, and driving sustainable revenue growth [6]. - The company has seen strong performance in its Health, Wealth & Career and Risk & Broking segments, with revenue growth across most operating regions for 15 consecutive quarters [7]. Acquisitions and Cash Flow - Strategic acquisitions have expanded WTW's geographical footprint in countries like Italy, Canada, the U.K., and France, enhancing its product portfolio [8]. - The company anticipates a year-over-year improvement in free cash flow margin in 2024, supported by solid operational performance [8]. Shareholder Returns - WTW is committed to returning wealth to shareholders through dividend hikes and share repurchases, with a five-year CAGR of 6.2% for dividends [9]. - The company plans to repurchase approximately $750 million in shares in 2024, subject to market conditions [9]. Valuation - WTW's stock is currently undervalued compared to its industry, trading at a price-to-earnings multiple of 16.11, lower than the industry average of 21.83 [10]. Analyst Sentiment - Recent analyst activity shows mixed sentiment, with three out of eleven analysts raising estimates for 2024 and 2025, while two have lowered their estimates [12]. - WTW's trailing 12-month return on equity (ROE) stands at 16.9%, which is below the industry average of 32.3%, indicating inefficiencies in utilizing shareholders' funds [12].