Willis Towers Watson (WLTW) Up 13.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Willis Towers Watson (WLTW). Shares have added about 13.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Willis Towers Watson due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Willis Towers Q1 Earnings Top Estimates, Revenues Lag

Willis Towers Watson delivered first-quarter 2020 adjusted earnings of $3.34 per share, which beat the Zacks Consensus Estimate by 6.4%. The bottom line improved about 12.1% year over year on the back of higher segmental revenue contributions.

The quarter benefited from strong organic revenue growth, reflecting solid demand for solutions and services across all core businesses.

Operational Update

Willis Towers Watson posted adjusted consolidated revenues of $2.47 billion, up 7% year over year, on a reported basis. The metric grew 4% on an organic basis. The top line however missed the Zacks Consensus Estimate by 0.2%.

Total cost of providing services increased 7.8% year over year to $2.1 billion.

Adjusted operating income was $525 million, up 6.7% year over year. Margin was flat at 21.3%.

Adjusted EBITDA was $680 million, up 13.1% year over year. Adjusted EBITDA margin was 27.6%, up 160 basis points (bps).

Quarterly Segment Update

Human Capital & Benefits: Total revenues of $850 million were up 4% year over year both on constant currency and organic basis. On an organic basis, revenue growth was driven by increased consulting and brokerage services, growth in specialty products, and continued expansion of the client portfolio for both local and global appointments. Operating margin was 25%, reflecting an increase of 30 bps.

Corporate Risk & Broking: Total revenues of $739 million improved 4% year over year both on a constant basis and organic basis.  On an organic basis, revenue growth was driven by new business generation along with strong renewals. Operating margin was 17.2% in the quarter under review, down 20 bps.

Investment, Risk & Reinsurance: Total revenues of $615 million increased 6% from the prior-year quarter on a constant basis and 5% on an organic basis. On an organic basis, all lines of business contributed to the growth. Operating margin was 45.1%, up 240 bps.

Benefits Delivery & Administration: Total revenues of $231 million improved 71% year over year on a constant basis and 1% on organic basis. The organic growth is driven by its expanded client base and increased demand for project work in the mid-market and large-market spaces. Operating margin was negative 4.7% compared with negative 15.3% in the year-ago quarter.

Financial Update

Cash and cash equivalents increased nearly 1.2% from 2019-end level to about $898 million.

Long-term debt decreased 2.3% from 2019 end to nearly $5.2 billion at quarter-end.

Shareholders’ equity increased 0.1% from the level on Dec 31, 2019 to $10.3 billion as of Mar 31, 2020.

Cash flow from operations was $23 million against cash used in operations of $47 million in the year-ago quarter. Free cash outflow was $43 million, narrower than outflow of $104 million in the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -11.35% due to these changes.

VGM Scores

At this time, Willis Towers Watson has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Willis Towers Watson has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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