WTW Lags Industry, Trades at a Discount: What Should Investors Do Now?

Shares of Willis Towers Watson Public Limited Company WTW have gained 14.5% in the past year, underperforming the industry and the Finance sector’s growth of 22.6% and 5.1%, respectively. Shares of WTW have outperformed the Zacks S&P 500 composite’s decline of 1.5%.

The insurer has a market capitalization of $30.01 billion. The average volume of shares traded in the last three months was 0.6 million.

WTW shares are trading below the 50-day moving average, indicating a bearish trend.

WTW vs. Industry, Sector & S&P 500 in One Year

WTW Shares are Affordable

WTW shares are trading at a price to forward 12-months earnings of 17.17X, lower than the industry average of 21.66X. Its pricing, at a discount to the industry average, gives a better entry point to investors. Shares of other insurers like Brown & Brown, Inc. BRO, Marsh & McLennan Companies, Inc. MMC and Arthur J. Gallagher & Co. AJG are trading at a multiple higher than the industry average.

WTW’s Growth Projection Encourages

The Zacks Consensus Estimate for Willis Towers’s 2025 earnings per share indicates a year-over-year increase of 0.2%. The consensus estimate for 2026 earnings per share and revenues indicates an increase of 13.6% and 5.5%, respectively, from the corresponding 2025 estimates.

The insurer has a solid surprise history. It surpassed earnings estimates in each of the last four quarters, the average beat being 6.29%. WTW has an impressive Growth Score of B. This style score helps analyze the growth prospects of a company. 

Factors Impacting WTW

Willis Towers’ growth strategy encompasses a focus on improving operating margins, increasing free cash flow conversion and driving sustainable revenue growth. Focus on core opportunities with the highest growth and return, which include gaining market share in Risk and Broking and Individual Marketplace, should spur long-term growth and return more value to shareholders.

Well-performing Health, Wealth & Career and Risk & Broking segments, driven by solid customer retention levels, growing new business and geographic diversification, continue to fuel the top line. Most of the company's operating regions experienced revenue growth for 15 straight quarters.

Strategic acquisitions have expanded its geographical footprint in the last few years in countries like Italy, Canada, the United Kingdom and France, as well as ramped up its product portfolio.

Willis Towers has been improving its liquidity while maintaining a solid balance sheet. A solid balance sheet and steady cash flow are expected to help the company engage in capital deployment for buybacks, dividend payouts, debt repayments, acquisitions and investments that drive and support growth. 

Distribution of Wealth

Banking on its capital position, WTW distributes wealth to shareholders in the form of dividend hikes and share repurchases. Its dividend has witnessed a six-year CAGR (2019-2025) of 5.7%. The insurer expects share repurchases to total approximately $1.5 billion in 2025, subject to market conditions and other relevant factors.

Headwinds

Despite the upside potential, Willis Towers’ expenses have been rising over the last several quarters. Higher salaries and benefits, other operating expenses, and transaction and transformation, as well as increased consulting and compensation costs related to the Transformation program, result in the contraction of margins. Willis Towers estimates to deliver expansion in margin over the long term.

WTW’s trailing 12-month ROE of 20% is weak when compared with the industry average of 29.5%, reflecting its inefficiency in using shareholders' funds.

Conclusion 

Willis Towers boasts a strong product portfolio and has a solid track record of strategic acquisitions, as well as favorable growth estimates. The Health, Wealth & Career and Risk & Broking segments should continue to witness significant growth from increases in most lines of business. A robust capital position over the years reflects its financial flexibility.

Given the escalating expenses and poor return on equity, it is better to stay cautious about this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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