Why Brown & Brown (BRO) Is Falling Today

NEW YORK (TheStreet) -- Brown & Brown  (BRO) was falling 6.6% to $28.66 Tuesday after the insurance broker missed earnings and revenue estimates in its quarterly earnings report.

For the fourth-quarter, Brown & Brown reported earnings of 32 cents a share, compared to 35 cents estimated by analysts polled by Thomson Reuters. Revenue for the quarter was $343.2 million, below the estimated $348.2 million for the quarter.

While the insurance company missed analyst estimates, net income rose 11% year-over-year to $47.2 million.

In a note to investors following the results, BMO Capital Markets analyst Charles Sebaski said, "Organic growth appears very average compared with the industry overall and rather disappointing relative to Brown's first three quarters of 2013, which averaged organic growth of 8.3%."

TheStreet Ratings team rates BROWN & BROWN INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BROWN & BROWN INC (BRO) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, good cash flow from operations, increase in stock price during the past year and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 8.9%. Since the same quarter one year prior, revenues rose by 18.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • BROWN & BROWN INC has improved earnings per share by 14.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, BROWN & BROWN INC increased its bottom line by earning $1.26 versus $1.13 in the prior year. This year, the market expects an improvement in earnings ($1.51 versus $1.26).
  • Net operating cash flow has increased to $88.02 million or 15.46% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -27.66%.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.
  • Although BRO's debt-to-equity ratio of 0.24 is very low, it is currently higher than that of the industry average. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.92 is somewhat weak and could be cause for future problems.
  • You can view the full analysis from the report here: BRO Ratings Report

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