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Morningstar | Willis Towers Watson Holds Steady in 1Q

Willis Towers Watson delivered a fairly uneventful first quarter. We see the company as something of a tollbooth business, and the first quarter was in line with that view, with modest year-over-year growth of 5%, excluding currency effects and acquisitions, and good margin improvement. We will maintain our $163 fair value estimate and narrow moat rating.

The insurance-related side of the business had a good quarter, with the corporate risk and broking and the investment, risk, and reinsurance segments up 4% and 5% year over year, respectively, excluding currency effects and acquisitions. The pricing environment in insurance has been improving, and commentary from carriers suggests this is ongoing, which is likely providing a modest lift to this side of the business that we think will continue through 2019. Willis Towers Watson did slightly lag its larger peers in terms of organic growth on the brokerage side, but the differential is too slight for us to make much of it.

The other areas of the business were a mixed bag. The human capital and benefits and the benefits delivery and administration segments were up 3% and 10% year over year, respectively, excluding currency effects and acquisitions. We see the human capital business as very mature and don’t expect much growth there long term. We do see strong growth potential for the healthcare exchange business, but this area is too small to be deeply impactful on Willis Towers Watson’s overall results.

Adjusted EBITDA margin improved to 26% from 24.3% last year. The company completed its merger integration program at the end of 2018, and while we think it can still improve margins, we expect the improvement to be much more modest once it laps the impact of the cost synergies.