Is Marsh McLennan Attractive After 15% Drop Amid New Strategic Initiatives?

• Curious whether Marsh & McLennan Companies is a bargain or overhyped? You are not alone, and getting the valuation right could make all the difference.
• Despite a slight 1.3% dip over the last week, the stock has pulled back further by 10.3% this month and is down 14.6% year-to-date, following a 17.2% slip over the past year. Yet, look beneath the surface and the company has delivered 72.7% gains over the last five years. This suggests both past strength and shifting sentiment.
• In recent weeks, headlines have focused on Marsh & McLennan’s ongoing strategic initiatives and industry partnerships, which have been interpreted as the company reinforcing its leadership position in insurance and risk management. These moves could be influencing both investor confidence and short-term volatility, adding extra context to the recent share price changes.
• The company currently scores 3 out of 6 on our valuation checks, revealing room for debate about its true worth. We will dig into different valuation methods next, but stay tuned. A more nuanced way to judge value might just surprise you by the end of this article.

Find out why Marsh & McLennan Companies's -17.2% return over the last year is lagging behind its peers.

Approach 1: Marsh & McLennan Companies Excess Returns Analysis

The Excess Returns model evaluates how much value Marsh & McLennan Companies creates for its shareholders above the basic cost of equity. This approach centers on the company’s ability to generate returns beyond what investors would expect simply for taking on risk, using both projected growth in book value and return on equity.

According to analyst estimates, Marsh & McLennan has a current book value of $30.92 per share and a stable book value forecast of $36.47 per share. Earnings per share are projected to stabilize at $10.88, based on a weighted average of future Return on Equity (ROE) estimates from six analysts. The model indicates an average ROE of 29.83% while the cost of equity stands at $2.47 per share, which implies an annualized excess return of $8.41 per share. These solid metrics show that the company is delivering strong profitability well above its funding costs.

Based on these calculations, the Excess Returns approach estimates Marsh & McLennan’s intrinsic value at $264 per share. With the current share price more than 30% below this level, the market seems to be undervaluing the company’s ability to compound shareholder value over time.

Result: UNDERVALUED

Our Excess Returns analysis suggests Marsh & McLennan Companies is undervalued by 31.6%. Track this in your watchlist or portfolio, or discover 844 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Marsh & McLennan Companies.

Approach 2: Marsh & McLennan Companies Price vs Earnings

The price-to-earnings (PE) ratio is widely used to assess the valuation of established, profitable businesses like Marsh & McLennan Companies, as it relates a company’s market price directly to its earnings. For investors, the PE ratio provides a quick way to gauge how much they are paying for each dollar of current profits. This makes it a practical yardstick for companies with consistent earnings power.

It is important to remember that what counts as a “normal” or “fair” PE ratio depends on a company’s expected growth and risk. Generally, companies with higher growth prospects or lower perceived risks deserve a higher PE multiple. Those facing uncertainties or limited growth should trade at lower multiples.

Currently, Marsh & McLennan Companies trades at a PE ratio of 21.43x. This is above the industry average PE of 13.11x but below the average found in its peer group, which stands at 27.37x. However, peer and industry comparisons only tell part of the story. Simply Wall St's proprietary Fair Ratio, calculated here at 15.31x, takes a broader view by incorporating the company’s growth outlook, profit margins, industry dynamics, market capitalization, and risk profile. Because the Fair Ratio reflects these many variables, it provides a more tailored and insightful benchmark than simply comparing with industry or peer group averages.

Given that Marsh & McLennan’s actual PE multiple is substantially higher than its Fair Ratio, the stock appears to be trading at a premium to its intrinsic fundamentals.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1409 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Marsh & McLennan Companies Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative connects your view of Marsh & McLennan Companies’ story, whether about its growth potential, risks, or latest developments, to a set of financial forecasts and, ultimately, to a fair value. In simple terms, a Narrative allows you to express how you see the company’s future unfolding and backs those beliefs with numbers, for example, what you expect for revenue growth, future profit margins, or a reasonable price multiple. Narratives are easy and accessible to create or explore on Simply Wall St’s Community page, used by millions of investors worldwide.

This approach empowers you to make more informed buy and sell decisions by showing how your personalized Fair Value compares to the current share price. Narratives automatically update as new news or earnings are released, keeping your estimates and conviction relevant. Take Marsh & McLennan as an example: some investors see robust global demand, digital investments, and margin expansion driving a fair value as high as $258 per share. Others focus on pressure from pricing declines and sector headwinds, resulting in far lower estimates such as $197. Narratives reflect these dynamic perspectives, so you can choose the story and valuation assumptions that best fit your understanding of the company.

Do you think there's more to the story for Marsh & McLennan Companies? Head over to our Community to see what others are saying!

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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