Recent share performance and business snapshot

Brown & Brown (BRO) has been on many investors’ screens after a tough stretch for the share price, with returns about 12% lower over the past month and 14% lower over the past 3 months.

The insurance broker and services group generates revenue of roughly US$5.8b and net income of about US$1.1b. Its operations span retail, programs, wholesale brokerage, and services across the US and several international markets.

At around US$69.53, Brown & Brown’s recent 1 day share price return of 3.75% comes after a weaker patch, with a 30 day share price return showing a 12.05% decline and a 1 year total shareholder return showing a 36.86% decline, which indicates that momentum has been fading despite stronger 3 and 5 year total shareholder returns.

If this pullback has you reassessing your options, it could be a good moment to cast the net wider and check out 23 top founder-led companies as potential long term compounders beyond the insurance space.

With the share price under pressure despite revenue of about US$5.8b and net income near US$1.1b, the key question now is whether Brown & Brown is trading below its underlying worth or if the market already reflects expectations for its future performance.

Most Popular Narrative: 17.6% Undervalued

Brown & Brown’s most followed narrative pegs fair value at about $84.36 per share, which sits well above the recent close at $69.53 and frames the current pullback in a different light for investors comparing price to modeled worth.

The analysts have a consensus price target of $109.917 for Brown & Brown based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $130.0, and the most bearish reporting a price target of just $87.0.

Curious what kind of earnings and revenue path needs to line up for that valuation to make sense? The narrative leans heavily on compound growth and steady margins. It also assumes a future earnings multiple that sits well above the sector. If you want to see exactly how those ingredients are combined, the full story behind this fair value is where it all comes together.

Result: Fair Value of $84.36 (UNDERVALUED)

However, it is worth keeping in mind that softer CAT property pricing and any reversal of Florida insurance reforms could quickly challenge those earnings and valuation assumptions.

Build Your Own Brown & Brown Narrative

If you are not fully sold on this view or prefer to lean on your own research, you can build a data driven thesis in minutes, starting with Do it your way.

A great starting point for your Brown & Brown research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If Brown & Brown is only one part of your watchlist, now is the time to broaden your research and line up a few backup candidates.

• Target potential mispricings by scanning our list of 55 high quality undervalued stocks that pair fundamentals with a margin of safety filter.
• Focus on resilience first by reviewing 85 resilient stocks with low risk scores, a set of companies flagged for lower overall risk scores.
• Hunt for future leaders before they are widely followed with our screener containing 23 high quality undiscovered gems, where strong financials meet limited market attention.

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.