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Marsh & McLennan Companies, Inc. (MMC) vs. Arthur J. Gallagher & Co. (AJG): Breaking Down the Data

Marsh & McLennan Companies, Inc. (NYSE:MMC) and Arthur J. Gallagher & Co. (NYSE:AJG) are both Financial companies that recently hit new highs. Many investors are wondering what to do with these names trading at such extreme levels. To determine if one is a better investment than the other, we will compare the two across growth, profitability, risk, return, dividends, and valuation measures.

Marsh & McLennan Companies, Inc. (NYSE:MMC) operates in the Insurance Brokers segment of the Financial sector. The company has grown sales at a 2.80% annual rate over the past five years, putting it in the low growth category. MMC has a net profit margin of 13.90% and is more profitable than the average company in the Insurance Brokers industry. In terms of efficiency, MMC has an asset turnover ratio of 0.72. This figure represents the amount of revenue a company generates per dollar of assets. MMC’s financial leverage ratio is 1.73, which indicates that the company’s asset base is primarily funded by equity capital. Company’s return on equity, which is really just the product of the company’s profit margin, asset turnover, and financial leverage ratios, is 28.40%, which is better than the Insurance Brokers industry average ROE.

Marsh & McLennan Companies, Inc. (MMC) pays out an annual dividend of 1.50 per share. At the current valuation, this equates to a dividend yield of 1.76%. The company has a payout ratio of 37.80%. MMC’s current dividend therefore should be sustainable. Stock’s free cash flow yield, which represents the amount of cash available to investors before dividends, expressed as a percentage of the stock price, is 1.21. All else equal, companies with higher FCF yields are viewed as cheaper. Company trades at a P/E ratio of 23.30, and is more expensive than the average stock in the Insurance Brokers industry. The average investment recommendation for MMC, taken from a group of Wall Street Analysts, is 2.20, or a buy.

Over the past three months, Marsh & McLennan Companies, Inc. insiders have been net sellers, acquiring a net of 1,640 shares. This implies that insiders have been feeling relatively bullish about the outlook for MMC. Insider activity and sentiment signals are important to monitor because they can shed light on how “risky” a stock is perceived to be at it’s current valuation. Knowing this, it makes sense to look at beta, a measure of market risk. MMC has a beta of 1.00 and therefore an average level of market volatility.



Arthur J. Gallagher & Co. (NYSE:AJG) operates in the Insurance Brokers segment of the Financial sector. AJG has increased sales at a 21.30% CAGR over the past five years, and is considered a high growth stock. The company has a net profit margin of 7.60% and is more profitable than the average Insurance Brokers player. AJG’s asset turnover ratio is 0.49 and the company has financial leverage of 2.09. AJG’s return on equity of 11.90% is better than the Insurance Brokers industry average.

Arthur J. Gallagher & Co. (AJG) pays a dividend of 1.56, which translates to dividend yield of 2.37% based on the current price. Stock has a payout ratio of 61.00%. According to this ratio, AJG should be able to continue making payouts at these levels. The company trades at a free cash flow yield of 1.94 and has a P/E of 26.25. Compared to the average company in the 22.35 space, AJG is relatively expensive. The average analyst recommendation for AJG is 2.40, or a buy.

Arthur J. Gallagher & Co. insiders have sold a net of -13,179 shares during the past three months, which implies that the company’s top executives have been feeling bearish about the stock’s outlook. Finally, AJG’s beta of 1.25 indicates that the stock has an average level of market risk.

Marsh & McLennan Companies, Inc. (NYSE:MMC) scores higher than Arthur J. Gallagher & Co. (NYSE:AJG) on 9 of the 13 measures compared between the two companies. MMC has the better fundamentals, scoring higher on profitability, efficiency, leverage and return metrics. MMC has better insider activity and sentiment signals.




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