Brown & Brown beats estimates but organic growth raises concerns
Insurance broker reports Q4 revenue beat on Accession acquisition, underlying business shows weakness
Brown & Brown delivered a mixed fourth quarter that highlighted the growing influence of acquisitions on the insurance broker's growth trajectory, as investors weigh the benefits of recent deals against underlying business performance.
The company reported fiscal fourth-quarter revenue of $1.607 billion, beating analyst estimates of $1.539 billion by $68.1 million. The revenue surge of 35.7% was primarily driven by the Accession acquisition, a deal that significantly boosted top-line performance even as the company's core business showed signs of strain. Organic revenue declined 2.8% in the quarter, a reversal from the modest growth that investors have come to expect from the Daytona Beach-based broker.
Adjusted earnings per share came in at $0.93, representing an 8.1% increase year-over-year and matching analyst expectations. However, GAAP earnings painted a different picture, falling 19.2% due to a $62 million mark-to-market impact from escrow liabilities related to recent acquisitions. This accounting hit masked the underlying profitability improvements, with full-year adjusted margins expanding to 35.9%.
On a full-year basis, organic revenue grew 2.8%, providing some comfort to analysts focused on long-term growth potential. The margin expansion demonstrates that despite near-term integration challenges, Brown & Brown continues to extract value from its acquisition strategy. The company, which operates across domestic and international markets including Bermuda, Canada, and the UK, has historically relied on a network of independent agents to drive growth through customized insurance solutions.
Shares of Brown & Brown are currently trading at $79.62, giving the company a market capitalization of approximately $27 billion. The stock has experienced volatility, trading in a 52-week range of $76.17 to $125.05, reflecting investor uncertainty about the effectiveness of the company's acquisition-heavy growth model. The current price represents a significant discount to the 52-week high and sits below the 200-day moving average of $95.67.
Analysts maintain a cautious outlook on the stock, with a consensus target price of $90.00. The breakdown of ratings shows limited enthusiasm: one analyst rates it a strong buy, two recommend buying, 13 advise holding, and one rates it a strong sell. This distribution suggests the market is watching closely to see whether organic growth can stabilize and improve in the coming quarters.
The mixed performance raises questions about Brown & Brown's strategy of relying heavily on acquisitions to drive growth. While the Accession deal has immediately boosted revenue, the organic decline indicates challenges in the core business. Insurance brokers typically benefit from rising premiums and expanding client relationships, making the 2.8% organic decline particularly noteworthy.
Investors will be focusing on management's commentary during upcoming earnings calls regarding the integration of recent acquisitions and plans to reignite organic growth. The company's valuation metrics—a trailing price-to-earnings ratio of 23.99 with a forward multiple of 16.58—suggest the market has already priced in some moderation in growth expectations.
The coming quarters will be critical for Brown & Brown to demonstrate that the current organic decline is a temporary issue related to integration challenges rather than a structural problem in its core brokerage operations. With the insurance industry facing pressure from digital disruption and changing client expectations, the company's ability to leverage its acquisitions while strengthening its existing franchises will determine whether the stock can recover from its recent decline and move closer to analyst targets.