Marsh & McLennan Companies Inc Valuation – March 2018 $MMC

Company Profile (excerpt from Reuters): Marsh & McLennan Companies, Inc., incorporated on March 17, 1969, is a professional services firm offering clients advice and solutions in risk, strategy and people. The Company is the parent company of various risk advisors and specialty consultants, including Marsh, the insurance broker, intermediary and risk advisor; Guy Carpenter, the risk and reinsurance specialist; Mercer, the provider of human resource (HR) and investment related financial advice and services, and Oliver Wyman Group, the management, economic and brand consultancy. The Company conducts business through two segments: Risk and Insurance Services, which includes risk management activities (risk advice, risk transfer and risk control and mitigation solutions), as well as insurance and reinsurance broking and services, and Consulting includes health, retirement, talent and investments consulting services and products, and specialized management, economic and brand consulting services.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MMC – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $41,670,631,151 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.31 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 178.99% Pass
6. Moderate PEmg Ratio PEmg < 20 23.94 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.76 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.31 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.02 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $3.43
MG Growth Estimate 7.37%
MG Value $79.66
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $49.72
MG Value based on 0% Growth $29.14
Market Implied Growth Rate 7.72%
Current Price $82.09
% of Intrinsic Value 103.05%

Marsh & McLennan Companies does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.3 in 2014 to an estimated $3.43 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 7.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Marsh & McLennan Companies revealed the company was trading above its Graham Number of $37.15. The company pays a dividend of $1.43 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 23.94, which was below the industry average of 25.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.55.

Marsh & McLennan Companies scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.55
Graham Number $37.15
PEmg 23.94
Current Ratio 1.31
PB Ratio 5.76
Current Dividend $1.43
Dividend Yield 1.74%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $5,562,000,000
Total Current Liabilities $4,262,000,000
Long-Term Debt $5,225,000,000
Total Assets $20,429,000,000
Intangible Assets $10,363,000,000
Total Liabilities $13,070,000,000
Shares Outstanding (Diluted Average) 516,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.24
Dec2017 $2.87
Dec2016 $3.38
Dec2015 $2.98
Dec2014 $2.65
Dec2013 $2.43
Dec2012 $2.13
Dec2011 $1.79
Dec2010 $1.55
Dec2009 $0.42
Dec2008 -$0.14
Dec2007 $4.53
Dec2006 $1.76
Dec2005 $0.74
Dec2004 $0.33
Dec2003 $2.81
Dec2002 $2.45
Dec2001 $1.70
Dec2000 $2.05
Dec1999 $1.31
Dec1998 $1.49

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.43
Dec2017 $2.97
Dec2016 $2.92
Dec2015 $2.59
Dec2014 $2.30
Dec2013 $1.97
Dec2012 $1.54
Dec2011 $1.38
Dec2010 $1.32
Dec2009 $1.29
Dec2008 $1.63
Dec2007 $2.36
Dec2006 $1.39
Dec2005 $1.34
Dec2004 $1.71
Dec2003 $2.29
Dec2002 $1.95

Recommended Reading:

Other ModernGraham posts about the company

26 Best Stocks For Value Investors This Week – 2/6/16
Marsh & McLennan Company Valuation – January 2016 Update $MMC
The Best Companies of the Insurance Industry – October 2015
15 Best Stocks For Value Investors This Week – 9/12/15
Marsh & McLennan Companies Analysis – September 2015 Update $MMC

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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