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How Risk Helps This Stock Succeed

We're living through a period of uncertainty where natural disasters seem like a regular occurrence, companies face increasing scrutiny over their business practices, and the pandemic has caused a glut of supply chain and employment issues that businesses have had a difficult time navigating.

This is where Marsh & McLennan (NYSE: MMC) shines. Marsh & McLennan is one of the largest insurance brokers and consulting firms in the world. The company provides advice to clients relating to risk management, strategy, and other business issues.

The firm's solid performance is the result of high demand for its consulting services as businesses look to navigate the treacherous waters. However, even before the pandemic Marsh & McLennan has been a solid company, with its stock performance beating the broader S&P 500 index over the past decade.

Stellar long-term performance

Marsh & McLennan is a solid long-term performer that has seen steady growth in revenue and net income over the past decade thanks to its leading position as a trusted broker and consultant for many businesses.

The company provides risk and insurance services through its Marsh and Guy Carpenter divisions. In these divisions, it advises individuals and commercial clients on insurance and risk management solutions. It also provides consulting through its Mercer and Oliver Wyman Group divisions, where it can provide strategies as well as technological and economic solutions for its private and governmental clients. In 2020, 60% of the company's revenue came from risk and insurance services and the remaining 40% came from its consulting services.

Image source: Getty Images.

Marsh & McLennan has increased revenue at a steady compound annual growth rate of 5% over the past decade, while its net income increased by a 14% CAGR during the same time period. The company's steady growth shows evidence of its position as a leading consultant and insurance broker. Its stock has beaten the S&P 500 over the past 10 years, returning investors 583% versus the index's 349%.

Faster growth this year as businesses face new challenges

Marsh & McLennan's stellar performance has continued in 2021 and is well above its 10-year average. Revenue for the second quarter came in at $5 billion, up 20% from the same quarter last year, and in the first six months of the year, revenue is up 14% to $10 billion. Net income in the second quarter of $820 million is up 43% from the same quarter last year and in the first six months of the year, net income is up 36% to $1.8 billion.

The company's growth was steady across segments, with its risk and insurance services and consulting segments seeing underlying revenue grow 13% and 12% respectively. Company management cited the strength of the economic recovery of U.S. markets and globally as one of the key drivers of growth.

Rising insurance premiums have benefited the company as well. Its Marsh Global Insurance Market Index shows premiums increased 13% year over year, reflecting elevated losses and concerns about inflation and low interest rates. Not only that, but the company has seen 15 consecutive quarters of rate increases in the commercial P&C insurance market place.

Increasing risk benefits Marsh & McLennan

Marsh & McLennan thrives when risk is present, because that means it can do what it does best: provide risk consulting and create solutions for businesses. CEO Dan Glaser said in the company's most recent earnings call that it was "benefiting from what may be the strongest economic rebound in nearly four decades." He went on to say, "there is a long runway for growth as we think about major protection gaps around the world, new emerging risks, digitization, [and the] workforce of the future."

The consultant and insurer sees many opportunities in the current environment, including developing climate solutions, solving supply chain disruptions, dealing with inventory issues, addressing labor shortages, and perhaps the biggest risk of all -- defending against cyberattacks. Glaser noted the increase in supply chain and ransomware attacks affecting all sectors and segments.

As we move through the back half of 2021, CFO Mark McGivney said top-line growth should remain strong and a favorable environment should drive a "terrific year" for the company. While the company isn't fearful of an economic downturn, Glaser said the biggest concern was continuing waves of COVID-19 and its variants.

Analysts expect solid growth from the firm as well, with average estimated sales in 2021 expected to be $19 billion, up nearly 12% from 2020. Average expected earnings per share for 2021 is $6.04, representing growth of nearly 22%. Next year's growth is expected to be more in line with historical expectations, as analysts project sales to grow 6.2%.

Marsh & McLennan has been a solid long-term performer, and investors should expect the stock to see continued success as more businesses turn to the firm for advice on how to navigate the increasing risks across the globe.

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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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