• If you are wondering whether Willis Towers Watson at around US$252 per share looks attractively priced or just fairly valued, the recent share performance gives some important clues.
• The stock has seen a 13.0% decline over the past week, a 13.3% decline over the past month, a 22.6% decline year to date, and a 16.5% decline over the last year. However, the 3 year and 5 year returns of 15.0% and 3.3% respectively paint a different picture over longer periods.
• Recent news coverage has focused on the broader insurance and risk advisory sector, with attention on how global risk trends and corporate demand for advisory services may affect companies like Willis Towers Watson. This context helps explain why the stock's recent pullback is attracting renewed interest from investors assessing whether sentiment has shifted more than the fundamentals.
• On Simply Wall St's 6 point valuation checklist, Willis Towers Watson scores a 4 out of 6 valuation score. This sets up a closer look at traditional methods like P/E, cash flow and asset based valuation, and an even more comprehensive way of thinking about value that will come at the end of this article.

Approach 1: Willis Towers Watson Excess Returns Analysis

The Excess Returns model looks at how effectively a company turns shareholder capital into profits above its cost of equity, then capitalises those “excess” profits into an intrinsic value per share.

For Willis Towers Watson, the starting point is a Book Value of US$84.61 per share and a Stable EPS of US$21.23 per share, based on weighted future Return on Equity estimates from 4 analysts. The Average Return on Equity is 22.47%, while the Cost of Equity is US$7.13 per share. That implies an Excess Return of US$14.10 per share, suggesting the company is expected to earn more on its equity base than investors are assumed to require.

The model also uses a Stable Book Value of US$94.47 per share, sourced from weighted future Book Value estimates from 2 analysts, to project how those excess returns could compound over time. Putting this together, the Excess Returns valuation points to an intrinsic value of about US$446.15 per share.

Compared to the recent share price around US$252, this implies an intrinsic discount of roughly 43.4%, which indicates the stock is assessed as materially undervalued by this approach.

Result: UNDERVALUED

Our Excess Returns analysis suggests Willis Towers Watson is undervalued by 43.4%. Track this in your watchlist or portfolio, or discover 45 more high quality undervalued stocks.

Approach 2: Willis Towers Watson Price vs Earnings

For a profitable company like Willis Towers Watson, the P/E ratio is a useful shorthand for what investors are currently willing to pay for each dollar of earnings. It is simple to understand and directly ties the share price to the bottom line, which is what ultimately matters to most shareholders.

What counts as a “normal” or “fair” P/E will usually depend on how the market views a company’s growth prospects and risks. Higher expected growth or lower perceived risk can support a higher multiple, while slower expected growth or higher risk tends to justify a lower one.

Willis Towers Watson currently trades on a P/E of 14.30x. That sits above the Insurance industry average of about 11.37x, but below the peer group average of 21.27x. Simply Wall St’s Fair Ratio for Willis Towers Watson is 12.47x, which is a proprietary estimate of what the P/E might be given factors such as earnings growth, industry, profit margins, market cap and identified risks. Because it is tailored to the company’s own profile rather than a simple average, the Fair Ratio can provide a more targeted reference point. On this basis, the current 14.30x P/E is higher than the Fair Ratio, suggesting the stock screens as somewhat overvalued on earnings.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Willis Towers Watson Narrative

Earlier it was mentioned that there is an even better way to understand valuation. This is where Narratives come in: a simple way for you to write the story you believe about Willis Towers Watson, link it to your own forecasts for revenue, earnings and margins, and see what that implies for fair value on Simply Wall St's Community page, which is used by millions of investors.

A Narrative connects three pieces: your view of the business, the numbers you think follow from that view, and the fair value those numbers support. Instead of only looking at ratios like the current P/E of 14.30x or the analyst fair value of US$354.74, you can see how different assumptions would justify a higher or lower value.

Because Narratives are updated automatically when new earnings, news or other data arrive, they help you decide if the gap between your Fair Value and the live share price is wide enough to consider buying or selling. They also show how other investors may see the same stock very differently. For example, one Narrative might align with the more bullish US$409.0 fair value while another might reflect the more cautious US$320.0 view.

Do you think there's more to the story for Willis Towers Watson? 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.