On October 26, 2023, Willis Towers Watson PLC (WTW, Financial) gained 10.27%, despite a 3-month loss of 1.28%. With an Earnings Per Share (EPS) of 9.88, the question arises: Is the stock modestly undervalued? This article aims to answer that question through a detailed valuation analysis. We invite you to delve into the following sections for an insightful understanding of Willis Towers Watson PLC's financial standing and intrinsic value.
About Willis Towers Watson PLC
Formed in January 2016, Willis Towers Watson PLC is a global advisory, insurance brokerage, and solutions company, resulting from the merger of Towers Watson and Willis Group. Operating in two business segments: health, wealth, and career (consulting operations) and risk and brokering (brokerage operations), it employs approximately 47,000 people. With a market cap of $24 billion and a stock price of $229.08 per share, the company's GF Value is estimated at $272.88, suggesting that the stock is modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary valuation measure that estimates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given its current price of $229.08 per share and a market cap of $24 billion, Willis Towers Watson PLC appears to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength can pose a higher risk of permanent capital loss. Hence, understanding a company's financial strength is crucial before investing. Willis Towers Watson PLC has a cash-to-debt ratio of 0.26, lower than 86.95% of companies in the Insurance industry, indicating fair financial strength.
Profitability and Growth
Companies with consistent profitability offer less risk for investors. Willis Towers Watson PLC has been profitable for 10 of the past 10 years, with an operating margin of 15.03%, better than 77.97% of companies in the Insurance industry. However, its growth ranks lower than 52.14% of companies in the Insurance industry, with a 3-year average EBITDA growth rate of 5.5%.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. A higher ROIC than WACC implies that the company is creating value for shareholders. Over the past 12 months, Willis Towers Watson PLC's ROIC was 3.98, lower than its WACC of 8.
Conclusion
Overall, Willis Towers Watson PLC's stock appears to be modestly undervalued. The company's financial condition and profitability are fair, but its growth ranks lower than most companies in the Insurance industry. To learn more about Willis Towers Watson PLC, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
