Goldman Sachs (NYSE:GS) has reiterated its Sell rating on Marsh & McLennan Companies, Inc. (NYSE: MMC), maintaining a price target of $220.00.
The firm updated its earnings per share (EPS) estimates for the years 2025-2026, increasing them by approximately 0.5%, yet these figures still sit 3% below the Visible Alpha Consensus Data.
The revisions to Goldman Sachs' model include an approximately 30 basis points improvement in adjusted operating margins, which is slightly offset by lower organic growth predictions and a 50 basis points increase in the effective tax rate to 26.5%.
Despite Marsh & McLennan's ability to meet its fiscal year 2024 guidance for mid-single-digit organic growth, margin expansion, and strong adjusted EPS growth, the firm holds the position that consensus estimates may be overly optimistic, especially in light of challenging organic growth and margin comparisons.
Goldman Sachs anticipates a continued modest deceleration in organic growth into the first half of 2025, influenced by incremental near-term pressure in discretionary consulting services from Oliver Wyman and Career.
The firm has adjusted its core margin expansion for the company's Risk and Insurance Services (RIS) to 50 basis points through 2026, up from the previous 30 basis points.
Despite this adjustment, the firm's margin estimates remain 60 basis points below the consensus due to potential impacts on fiduciary investment income and a diminishing benefit from Marsh & McLennan's restructuring program, which is expected to contribute a 30 basis points benefit in 2025.
Additionally, Goldman Sachs notes that Marsh & McLennan's adjusted effective tax rate guidance for 2024 has been revised upward to 26.5%, from a range of 25.5% to 26.5% at the beginning of the year.
In other recent news, Marsh McLennan (NYSE:MMC) displayed strong performance in Q3 2024, with a 5% rise in underlying revenue and a 12% increase in adjusted operating income. The company also reported an adjusted EPS of $1.63, up 4% year-over-year, and a consolidated revenue of $5.7 billion.
In a significant expansion move, Marsh McLennan acquired McGriff Insurance Services for $7.75 billion, a deal expected to close by the end of the year. The acquisition is anticipated to be modestly accretive to adjusted EPS in the first year.
The company's 2024 outlook includes expectations of mid-single-digit revenue growth and continued margin expansion, with a projected capital deployment of approximately $4.2 billion. Despite potential challenges into 2025 due to increased transaction risks, the company remains optimistic about growth opportunities arising from elevated risks, including geopolitical and cyber threats.
InvestingPro Insights
Marsh & McLennan Companies, Inc. (NYSE:MMC) presents a mixed picture for investors, as reflected in the latest InvestingPro data and tips. The company's market capitalization stands at a robust $111.59 billion, underscoring its significant presence in the insurance industry.
One of the most notable InvestingPro Tips is that MMC has raised its dividend for 15 consecutive years, demonstrating a strong commitment to shareholder returns. This is particularly relevant given Goldman Sachs' cautious stance, as it suggests the company's financial stability despite potential headwinds. Additionally, MMC has maintained dividend payments for an impressive 54 consecutive years, further solidifying its reputation as a reliable income stock.
The company's financial health is also evident in its profitability metrics. With a revenue of $23.95 billion in the last twelve months and a gross profit margin of 44.77%, MMC shows strong operational efficiency. The operating income margin of 26.66% further supports this view.
However, investors should note that MMC is trading at a relatively high P/E ratio of 28.11, which aligns with Goldman Sachs' concerns about potentially optimistic market expectations. This valuation metric, combined with the InvestingPro Tip that MMC is trading near its 52-week high, suggests that the stock may be fully valued at current levels.
For those seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for MMC, providing a deeper understanding of the company's financial position and market performance.
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