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On Monday, Goldman Sachs adjusted its outlook on Willis Towers Watson (NASDAQ:WTW), reducing the 12-month price target to $378 from the previous figure. Despite the adjustment, the firm maintained a Buy rating on the company’s shares. Currently trading at $325.79, WTW is near its 52-week high of $334.99, according to InvestingPro data, which shows the stock has delivered a robust 21.3% return over the past year. Analysts at Goldman Sachs attributed the change in price target to several factors not directly related to the core business, such as foreign exchange rates, fiduciary investment income, reinsurance joint venture startup costs, and changes to non-GAAP definition alignments.
The reduction in the price target reflects an approximate 1% decrease, with the new target offering a 17% total return opportunity according to Goldman Sachs. The analysts emphasized their confidence in Willis Towers Watson’s financial outlook, citing a strong free cash flow (FCF) per share growth projection of 26% 2-year CAGR and an average margin expansion of over 100 basis points through 2025/2026.
Goldman Sachs analysts further noted that the underperformance of Willis Towers Watson’s stock since the fourth quarter of 2024 could be largely explained by these non-core items, which have influenced earnings per share (EPS) estimates. The firm’s go-forward EPS estimates saw an average decrease of 3% on a like-for-like basis, and a 6% change to adjusted EPS when including non-GAAP definition changes.
The analysts also highlighted several tailwinds that could bolster Willis Towers Watson’s free cash flow in the coming years. These include above-peer operating margin expansion, the removal of restructuring costs that previously impacted FCF margin, and the sale of TRANZACT. InvestingPro data reveals the company’s strong financial position with $1.38 billion in levered free cash flow and a healthy gross profit margin of 44.6%. For investors seeking deeper insights, InvestingPro offers additional financial metrics and 7 more exclusive ProTips for WTW. With these factors in play, Goldman Sachs projects a 17.8% FCF margin for Willis Towers Watson by 2026, under the company’s new definition that includes capitalized software costs.
Willis Towers Watson is also expected to have significant capital flexibility, bolstered by strong FCF and over $1.2 billion in anticipated cash from recent and expected divestitures. This financial strength is predicted to support approximately $1.7 billion in share buybacks, which is about 5% of the current market cap, and roughly $800 million in annual acquisition spending through 2027.
The firm’s analysts concluded by noting that Willis Towers Watson has historically traded at around 13.5 times adjusted EBITDA. They assigned a slightly higher multiple of 13.8 times, despite expecting material improvements in cash conversion, stronger EBITDA/FCF growth, and considering that peer multiples have expanded by an average of 5%. Worth noting is WTW’s impressive dividend track record, having maintained payments for 22 consecutive years with a current yield of 1.08%. This dividend consistency, combined with the company’s current EV/EBITDA ratio of 14.1x, provides valuable context for investors evaluating the stock’s valuation. A comprehensive analysis of WTW’s financial health and growth prospects is available in the detailed Pro Research Report on InvestingPro, part of its coverage of over 1,400 US equities.
In other recent news, Willis Towers Watson (WTW) has been active in enhancing its operational capabilities and revising its financial outlook. WTW recently launched a new accelerator for its Radar rating and analytics engine, designed to streamline the integration of Radar with PolicyCenter, thus delivering real-time, sophisticated analytics for insurers. This move is expected to significantly accelerate the time it takes for insurers to benefit from Radar’s capabilities.
Simultaneously, WTW has seen revisions in its financial outlook. BMO Capital Markets reduced the firm’s price target from $325.00 to $320.00, maintaining a Market Perform rating. This adjustment followed a detailed assessment of Willis Towers Watson’s 2025 guidance, leading to changes in BMO’s earnings expectations. In a similar move, BofA Securities reduced the firm’s price target from $349.00 to $341.00, while maintaining a Neutral rating.
In terms of staffing, WTW has announced key appointments. Stephen Kyriacou has been named as Head of Litigation and Contingent Risk Solutions, and Senior Director of Transactional Solutions for North America. Additionally, Mike Giacobbe has been appointed as the new Client Strategy Leader for Corporate Risk & Broking in North America. These appointments underscore WTW’s commitment to innovative solutions and client-specific service.
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