AJG Outperforms Industry, Trades at Premium: How to Play the Stock

Shares of Arthur J. Gallagher & Co.’s AJG have gained 29.1% in the past year, outperforming its industry, the Finance sector and the Zacks S&P 500 composite’s return.

Arthur J. Gallagher shares are trading well above the 200-day moving average, indicating a bullish trend.

The insurer has a market capitalization of $79.66 billion. The average volume of shares traded in the last three months was 1.6 million.

AJG Outperforms Industry, Sector & S&P 500 in One Year

AJG Shares are Expensive

AJG shares are trading at a premium to the industry. Its price-to-book value of 26.17X is higher than the industry average of 21.66X. Shares of other insurers like Brown & Brown, Inc. BRO, Marsh & McLennan Companies, Inc. MMC and Erie Indemnity Company ERIE are also trading at a multiple higher than the industry average.

AJG’s Growth Projection Encourages

The Zacks Consensus Estimate for Arthur J. Gallagher’s 2025 earnings per share indicates a year-over-year increase of 12.4%. The consensus estimate for revenues is pegged at $14.06 billion, implying a year-over-year improvement of 23.6%. The consensus estimate for 2025 earnings per share and revenues indicates an increase of 18.1% and 20.3%, respectively, from the 2024 estimates.
Earnings of Arthur J. Gallagher grew 20.4% in the last five years, better than the industry average of 15.2%.

Impressive Earnings Surprise History of AJG

Arthur J. Gallagher’s bottom line surpassed earnings estimates in three of the last four quarters and matched in one, the average being 2.25%.

Factors Acting in Favor of AJG

This brokerage insurer remains focused on generating both organic (particularly international) and inorganic growth and is, thus, tapping into growth opportunities worldwide. This, coupled with solid retention and improving renewal premiums across all major geographies and most product lines, bodes well for growth. 

Arthur J. Gallagher expects organic growth of 4% in 2025. In the risk management segment, the company expects organic growth in the 6-8% range and margins around 20.5% in 2025. The brokerage segment’s organic growth is expected in the 6-8% range. 

AJG’s revenues are geographically diversified with strong domestic and international operations. International contributes about one-third of revenues. Given the number and size of its non-U.S. acquisitions, AJG expects international contribution to its total revenues to trend upward. 

Its inorganic growth story is impressive. Since Jan. 1, 2002, the company has acquired 725 companies so far. Revenue growth rates generally ranged from 5% to 15% for 2024 acquisitions. The company completed 48 new brokerage mergers, totaling $400 million of estimated annualized revenues in 2024. AJG has a strong merger pipeline of more than 100 companies, representing about $1.5 billion of annualized revenues. Of these, 45 term sheets are signed or being prepared, representing about $650 million of annualized revenues.

Banking on its capital position, AJG distributes wealth to shareholders through dividend hikes and share repurchases. In the first quarter of 2025, the dividend was raised by 8.3%, witnessing a six-year CAGR (2020-2025) of 7.6%.

However, Arthur J. Gallagher has been experiencing an increase in expenses due to higher compensation and operating expenses that have been eroding margins.

Final Take on AJG

AJG continues to benefit from solid retention, improving renewal premiums, and organic and inorganic growth. The Risk Management and Brokerage segments should continue to witness significant growth. A robust capital position over the years reflects its financial flexibility. Its impressive dividend history as well as solid growth projections are other positives.

Given the escalating expenses and premium valuation, 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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