• Investors may be wondering whether Marsh & McLennan Companies is starting to offer better value, or if the current share price already reflects its strengths.
• The stock last closed at US$166.03, with returns of a 1% decline over 7 days, a 3.8% decline over 30 days, a 9% decline year to date, a 25.9% decline over 1 year, and a 3.4% decline over 3 years, compared with a 33.1% gain over 5 years.
• Recent market attention has focused on how Marsh & McLennan Companies is positioned within the insurance sector and the broader risk advisory space. Investors have also been weighing how the company's profile as a global broker and consultant fits into changing attitudes toward risk management and insurance services.
• On Simply Wall St's valuation checks, Marsh & McLennan Companies scores 3 out of 6. The next step is to look at how different valuation methods line up on this stock and then consider a more comprehensive way of thinking about value later in the article.

Approach 1: Marsh & McLennan Companies Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to earn over and above the return that shareholders require, based on the risk they take. Instead of focusing on cash flows, it centers on how efficiently equity capital is used.

For Marsh & McLennan Companies, the model uses a Book Value of $30.22 per share and a Stable EPS of $11.36 per share, sourced from weighted future Return on Equity estimates from 5 analysts. The Average Return on Equity is 31.18%, compared with a Cost of Equity of $2.59 per share, which implies an Excess Return of $8.77 per share. The Stable Book Value is $36.44 per share, based on weighted future Book Value estimates from 4 analysts.

These assumptions feed into an Excess Returns valuation of US$282.30 per share. Compared with the recent share price of US$166.03, this implies the stock is 41.2% undervalued on this model.

Result: UNDERVALUED

Our Excess Returns analysis suggests Marsh & McLennan Companies is undervalued by 41.2%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Marsh & McLennan Companies Price vs Earnings

The P/E ratio is a common way to value profitable companies because it links what you pay for each share to the earnings that each share generates. In simple terms, higher growth expectations and lower perceived risk usually support a higher P/E, while slower growth and higher risk tend to align with a lower “normal” or “fair” P/E.

Marsh & McLennan Companies currently trades on a P/E of 20.38x. This is close to the peer average of 20.28x and above the Insurance industry average P/E of 11.18x. On the surface, that suggests the stock trades at a premium to the broader industry, but is more in line with similar companies.

Simply Wall St’s Fair Ratio for Marsh & McLennan Companies is 13.48x. This Fair Ratio is a proprietary estimate of what the P/E might be given factors such as earnings growth, industry, profit margin, market cap and specific risks. It can be more informative than a simple peer or industry comparison because it adjusts for those company specific characteristics. Comparing the current P/E of 20.38x with the Fair Ratio of 13.48x indicates the stock screens as overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Marsh & McLennan Companies Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as a simple tool on Simply Wall St's Community page that lets you connect your story about Marsh & McLennan Companies to a set of revenue, earnings and margin forecasts. You can turn that into a Fair Value, and then compare it with the current price to help decide whether to buy or sell. Each Narrative automatically updates as fresh news or earnings arrive. For example, one investor might build a Narrative closer to the higher analyst fair value view around US$236.00, while another might align with the lower US$179.00 view, reflecting different convictions about future growth, profitability and risk.

Do you think there's more to the story for Marsh & McLennan Companies? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.