How Does Gallagher Stack Up After Latest Acquisition and Double Digit Stock Gains?

Thinking about buying, selling, or simply holding onto Arthur J. Gallagher stock? You are definitely not alone. This insurance brokerage powerhouse has made some impressive moves, as its recent track record demonstrates. Over the past week, the stock gained 2.1%, and it is up 3.8% over the last month. Year to date, Arthur J. Gallagher’s shares have climbed 12.5%. What also stands out is how the stock has outpaced broader markets over the long term, jumping 83.1% over the past three years and rising 202.0% over five years.

Much of this performance is attracting attention, especially as global insurance markets ebb and flow with new regulations and ongoing economic shifts. Investors are giving the company a fresh look and reassessing both its growth potential and its risk profile in light of market developments.

Of course, before making any decisions, valuation matters. On our scorecard, which adds one point for each of six key criteria where a stock appears undervalued, Arthur J. Gallagher earns a 2. So, while there are a couple of value opportunities, the stock may not be a bargain by certain traditional standards.

This brings us to the heart of the matter: how do the different valuation approaches stack up for Arthur J. Gallagher, and is there an even smarter way to size up the opportunity here? Let’s dive in.

Arthur J. Gallagher scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Arthur J. Gallagher Excess Returns Analysis

The Excess Returns valuation model focuses on measuring how much value a company generates by earning returns above its cost of equity. For Arthur J. Gallagher, this approach takes into account both the business’s ongoing ability to generate earnings on its equity base and the sustainability of these returns over time.

Key data points for this analysis include:

• Book Value: $89.79 per share
• Stable EPS: $15.02 per share (Source: Weighted future Return on Equity estimates from 4 analysts.)
• Cost of Equity: $7.08 per share
• Excess Return: $7.94 per share
• Average Return on Equity: 14.37%
• Stable Book Value: $104.49 per share (Source: Weighted future Book Value estimates from 2 analysts.)

By projecting these figures forward and discounting future excess profits back to today’s value, the model estimates Arthur J. Gallagher's intrinsic value at $319.32 per share. With the model indicating shares are 2.8% undervalued, this suggests the stock is trading almost exactly in line with its calculated fair value.

Result: ABOUT RIGHT

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Arthur J. Gallagher.

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Arthur J. Gallagher's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Arthur J. Gallagher Price vs Earnings

The price-to-earnings (PE) ratio is often the go-to metric for evaluating profitable companies like Arthur J. Gallagher. It tells investors how much they are paying for each dollar of current earnings. This ratio works especially well when a company’s profits are steady and growing, providing a snapshot of how the market values its earnings power compared to its peers.

It is important to remember that growth expectations and risk play a major role in what constitutes a “normal” or “fair” PE ratio. Companies with brighter prospects or lower perceived risk can justify higher PE ratios, while slower-growing or riskier businesses typically trade at lower ones.

As of now, Arthur J. Gallagher’s PE ratio stands at 48.5x. That is notably higher than the insurance industry average of 14.2x and also sits just below the peer average of 53.4x. On the surface, this might suggest the stock is on the pricier side compared to its sector.

This is where Simply Wall St’s proprietary Fair Ratio stands out. The Fair Ratio for Arthur J. Gallagher is calculated at 20.5x. This metric adjusts the benchmark PE by incorporating essential inputs such as the company’s growth outlook, profit margins, market size, and risk factors. Unlike a simple comparison to industry averages or individual peers, this tailored approach aims to deliver a more accurate reflection of what investors should pay based on the company’s unique profile.

Comparing the current PE of 48.5x to the Fair Ratio of 20.5x shows the shares trade at a significant premium. This suggests the stock may be overvalued by this measure, even after accounting for the company’s positive traits.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Arthur J. Gallagher Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply the story you believe about a company, your perspective on why it will succeed or stumble, linked directly to your own forecast of its future revenue, earnings, and profit margins. Narratives bridge the gap between numbers and meaning, connecting what is happening in Arthur J. Gallagher’s business to an actionable fair value based on your unique outlook.

On Simply Wall St’s platform, Narratives are easy to access and use on the Community page, and millions of investors rely on them to clarify their decisions. You can instantly see if your fair value is above or below today’s price, helping you decide when to buy or sell. Because Narratives update automatically when news or earnings come in, your investment thesis stays relevant, even as the facts change.

For example, some investors looking at robust digital expansion and margin growth see Arthur J. Gallagher as worth up to $388 per share, while others, worried about increased acquisition risk or market shifts, see a fair value closer to $267. Your Narrative empowers you to cut through the noise and act with confidence based on what matters most to you.

Do you think there's more to the story for Arthur J. Gallagher? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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