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BMO Capital maintained its Market Perform rating for Willis Towers Watson (NASDAQ:WTW) with a steady price target of $298.00. The firm's analysis acknowledges a significant reduction in WTW's expected organic growth and EBITDA outlook. This adjustment follows an announcement that revealed challenges within the company's operations.
The analyst from BMO Capital noted that the recent developments could be seen as mitigating a potential 'tail-risk' for the company. The term 'tail-risk' refers to the risk of an asset moving more than three standard deviations from its current price, beyond the normal expectations of market volatility. The analyst had previously estimated that this segment of WTW's business was experiencing profit pressure, which could have led to shortfalls in organic sales later in the year.
Despite the lowered expectations for organic growth and EBITDA, the analyst pointed out that Willis Towers Watson's free cash flow (FCF) estimates are unlikely to be affected. This is partly because the Tranzact business was already contributing minimally to cash flow. The analyst also mentioned that compared to its peers, WTW's free cash flow versus reported earnings levels are lower due to the company's reduced FCF conversion rate.
The reiteration of the Market Perform rating indicates that BMO Capital does not foresee a significant change in the stock's performance in the near term. The price target of $298.00 remains unchanged, suggesting that the firm believes the stock will not deviate significantly from its current trading price.
Willis Towers Watson has not provided any public commentary on the analyst's statements or the maintained rating and price target. The company's stock performance will continue to be observed by investors and analysts alike, particularly in light of the recent announcement and its implications for future growth and profitability.
Global advisory firm Willis Towers Watson has been making significant moves. The company is set to sell its TRANZACT direct-to-consumer Medicare Advantage distribution operation to private equity firms GTCR and Recognize for $632 million, a deal expected to conclude by year-end.
This sale will lead to Willis Towers Watson recording impairment charges estimated between $1.6 billion to $2.1 billion in the third quarter.
Despite these charges, Truist Securities and Roth/MKM have maintained a Buy rating on Willis Towers Watson's shares, with Truist Securities increasing its price target from $335.00 to $365.00. Barclays has initiated coverage on Willis Towers Watson with an Underweight rating due to concerns about the company's ability to meet its organic growth estimates.
These are recent developments and they indicate a significant shift in Willis Towers Watson's business structure. The sale of the TRANZACT operation is a major move as it refocuses its business and capital allocation.
InvestingPro Insights
Recent data from InvestingPro offers additional context to BMO Capital's analysis of Willis Towers Watson (NASDAQ:WTW). Despite the challenges noted in the report, WTW's financials show some positive indicators. The company's revenue for the last twelve months as of Q2 2023 stood at $9.686 billion, with a 6.7% growth rate. Moreover, WTW has maintained a strong EBITDA margin of 21.28% over the same period.
InvestingPro Tips highlight that WTW has raised its dividend for 7 consecutive years and has maintained dividend payments for 22 consecutive years. This consistent dividend policy aligns with the analyst's observation about the company's free cash flow stability. Additionally, WTW is trading near its 52-week high, with a strong return of 15.03% over the last three months, potentially reflecting investor confidence despite the lowered growth expectations.
It's worth noting that WTW's P/E ratio of 28.55 is relatively high, which the InvestingPro Tips suggest might be high relative to near-term earnings growth. This valuation metric could be a factor in BMO Capital's Market Perform rating.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for WTW, providing a deeper understanding of the company's financial health and market position.
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