Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of Willis Towers Watson PLC (NAS:WLTW, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $239.98 per share and the market cap of $31 billion, Willis Towers Watson PLC stock appears to be fairly valued. GF Value for Willis Towers Watson PLC is shown in the chart below.


Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued
Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued

Because Willis Towers Watson PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 6.1% over the past five years.

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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Willis Towers Watson PLC has a cash-to-debt ratio of 2.57, which which ranks in the middle range of the companies in Insurance industry. The overall financial strength of Willis Towers Watson PLC is 5 out of 10, which indicates that the financial strength of Willis Towers Watson PLC is fair. This is the debt and cash of Willis Towers Watson PLC over the past years:

Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued
Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Willis Towers Watson PLC has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $9.4 billion and earnings of $7.65 a share. Its operating margin of 14.08% better than 69% of the companies in Insurance industry. Overall, GuruFocus ranks Willis Towers Watson PLC's profitability as fair. This is the revenue and net income of Willis Towers Watson PLC over the past years:

Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued
Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Willis Towers Watson PLC's 3-year average revenue growth rate is in the middle range of the companies in Insurance industry. Willis Towers Watson PLC's 3-year average EBITDA growth rate is 17.6%, which ranks better than 79% of the companies in Insurance industry.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Willis Towers Watson PLC's return on invested capital is 2.82, and its cost of capital is 4.65. The historical ROIC vs WACC comparison of Willis Towers Watson PLC is shown below:

Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued
Willis Towers Watson PLC Stock Shows Every Sign Of Being Fairly Valued

To conclude, Willis Towers Watson PLC (NAS:WLTW, 30-year Financials) stock gives every indication of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 79% of the companies in Insurance industry. To learn more about Willis Towers Watson PLC stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.