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On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on Brown & Brown (NYSE:BRO), downgrading the stock from Overweight to Equal-weight, while setting a price target of $128.00. The firm cited the stock’s significant year-to-date appreciation as a key factor for the rating change. Brown & Brown’s shares have risen approximately 16% since the beginning of the year, outperforming other stocks in the property and casualty (P&C) broker sector.
The stock’s robust performance has been attributed to stronger than anticipated fourth-quarter results from 2024, sustained business momentum, and its resilience in a fluctuating macroeconomic landscape. However, Morgan Stanley pointed out that Brown & Brown is currently trading at nearly 28 times forward earnings, which is close to its five-year peak in price-to-earnings ratio.
Compared to its industry counterparts, Brown & Brown is trading at the highest premium relative to the peer average observed over the last five years. This premium valuation, combined with prevailing macroeconomic uncertainties, leads Morgan Stanley to believe that the stock’s near-term upside potential may be more restricted compared to its peers.
Despite the downgrade to Equal-weight, Morgan Stanley remains optimistic about Brown & Brown’s prospects in the longer term. The firm recognizes the company’s favorable positioning and anticipates that it will continue to be well-situated moving forward.
In other recent news, Brown & Brown reported strong fourth-quarter earnings for 2024, surpassing market expectations with an earnings per share (EPS) of $0.86 compared to the forecasted $0.77. The company’s revenue also exceeded predictions, reaching $1.2 billion against a forecast of $1.12 billion. This performance marked a 15.4% year-over-year increase in total revenues, contributing to a full-year revenue of $4.8 billion, up 13%. Despite these positive results, Brown & Brown’s stock saw a slight decline in after-hours trading. The company completed 10 acquisitions during this period, enhancing its revenue base and international presence. Looking ahead to 2025, Brown & Brown anticipates a flat adjusted EBITDA margin and a cautious outlook due to potential impacts from California wildfires. Meanwhile, Goldman Sachs maintained a Buy rating on Brown & Brown, raising the price target slightly to $118. In parallel, Mattel (NASDAQ:MAT) also reported strong earnings, with fourth-quarter revenue for 2024 reaching $1,646 million, surpassing market expectations and contributing to a positive outlook from analysts.
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