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Willis Towers Watson Earnings: Growth Continues to Accelerate

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Willis Towers Watson’s WTW third-quarter results showed that growth continues to accelerate and is now almost on par with the company’s larger peers. Overall, the quarter provides some confidence that management’s efforts to stabilize and grow the narrow-moat business are bearing some fruit. We will maintain our $241 fair value estimate and see shares as modestly undervalued.

Overall revenue was up 11% year over year, or 9% on an organic basis. Organic growth in the consulting and brokerage businesses were both solid at 9% and 10%, respectively. We think the company is benefiting as recent staff additions are becoming productive. The brokerage side of the business is also benefiting from a hard insurance pricing market. While that tailwind will likely start to ebb, higher interest rates and better fiduciary interest income are now providing an additional modest boost. We don’t expect growth for Willis Towers Watson or peers to hold at recent levels long term. However, we are pleased to see the company close the growth gap with peers while this favorable industry remains in place.

Adjusted operating margins improved to 16.2% from 14.5% last year. The company has now reached $300 million in total savings related to its cost-reduction plan. Additionally, the rise in fiduciary interest income is benefiting margins, as this income falls almost completely to the bottom line. We estimate that this accounts for about 90 basis points of the margin improvement.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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