Willis Towers Watson PLC (WTW, Financial) recently experienced a daily gain of 2.4%, despite a 3-month loss of -8.84%. Its Earnings Per Share (EPS) stands at 9.88. The question remains: is the stock modestly undervalued? To answer this, we delve into a detailed valuation analysis of Willis Towers Watson PLC (WTW). We encourage you to read on to gain a deeper understanding of the company's value and its market position.
Company Introduction
Willis Towers Watson PLC, formed in January 2016 from the merger of Towers Watson and Willis Group, is a global advisory, insurance brokerage, and solutions company. It operates in two business segments: health, wealth & career (consulting operations) and risk & brokering (brokerage operations). The company employs about 47,000 people. Comparing the stock price with the GF Value, an estimation of fair value, we pave the way for a profound exploration of the company's value, integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
The stock of Willis Towers Watson PLC (WTW, Financial) appears to be modestly undervalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 213.36 per share, Willis Towers Watson PLC stock appears to be modestly undervalued.
Because Willis Towers Watson PLC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Evaluating Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. Willis Towers Watson PLC has a cash-to-debt ratio of 0.26, which ranks worse than 86.97% of 476 companies in the Insurance industry. The overall financial strength of Willis Towers Watson PLC is 5 out of 10, which indicates that the financial strength of Willis Towers Watson PLC is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Willis Towers Watson PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.10 Bil and Earnings Per Share (EPS) of $9.88. Its operating margin is 15.03%, which ranks better than 76.79% of 56 companies in the Insurance industry. Overall, the profitability of Willis Towers Watson PLC is ranked 7 out of 10, which indicates fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Willis Towers Watson PLC is 7.1%, which ranks better than 60.35% of 459 companies in the Insurance industry. The 3-year average EBITDA growth is 5.5%, which ranks worse than 51.25% of 281 companies in the Insurance industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Willis Towers Watson PLC's ROIC was 3.98, while its WACC came in at 8.1.
Conclusion
Overall, Willis Towers Watson PLC (WTW, Financial) stock appears to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 51.25% of 281 companies in the Insurance industry. To learn more about Willis Towers Watson PLC stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
