Insurance brokers defied a sea of red across financial stocks Thursday after better-than-expected quarterly earnings from Marsh & McLennan Companies, Inc. (MMC) and Willis Towers Watson Public Limited Company (WLTW) eased growing concerns about what impact the coronavirus pandemic will have on the industry.
Let’s look at each company in more detail, as well as Aon Plc (AON), which reported first quarter earnings before of the opening bell today. We’ll also analyze the charts to identify possible trading opportunities.
Marsh & McLennan Companies, Inc. (MMC)
Marsh & McLennan provides advice and solutions to clients in risk, strategy, and human capital. The New York-based insurance giant posted first quarter earnings per share (EPS) of $1.64 to deliver a 5.1% earnings surprise and add to its string of five consecutive bottom-line beats. Revenues for the quarter grew 5%, aided by the firm’s insurance services and consulting businesses. Independent investment research firm CFRA upgraded Marsh & McLennan stock from “hold” to “buy” after the company’s encouraging results. Trading at $97.33, with a market capitalization of $49.06 billion and issuing a 1.87% dividend yieldthe stock has fallen nearly 12% so far this year as of May 1, 2020.
Marsh & McLennan shares have recently consolidated within a pennant pattern near a horizontal line that extends back over the past 12 months. An earnings-driven breakout on heavy volume in yesterday’s session saw the stock close above the pennant’s top trendline and 50-day simple moving average (SMA) – a move that may bring buyers out of the woodwork in the days ahead. Those who buy at current levels should set a profit target near crucial upper resistance at $110 but exit on a breakdown beneath the pattern’s low at $91.80.
Willis Towers Watson Public Limited Company (WLTW)
Willis Towers Watson provides insurance brokerage and advisory services, operating through the Willis brand for risk and insurance solutions and the Towers Watson brand for consulting services. The $22.95 billion insurer posted mixed first quarter financial results, beating bottom-line estimates by 6.4% but missing revenue forecasts slightly due to higher costs. Although the stock has fallen 11.71% year to date, it has outperformed the industry average over the same period by about 5% as of May 1, 2020. Investors also receive a 1.55% dividend yield.
Willis Towers’ post-sell-off rebound stalled at the 200-day SMA, with the price sliding roughly 10% since April 14. Yesterday’s upbeat results helped the stock stabilize at a closely watched zone of support between $170 and $175 in a sign that the recent selling may be over. Traders who go long here should think about scaling out at $195 and $215 – both key areas of overhead resistance. Protect capital by cutting losses if price falls below the zone of support.
Aon Plc (AON)
With a market value of nearly $40 billion, Aon provides advice and solutions to clients focused on risk, retirement, and health. The London-based insurance broker disclosed adjusted EPS of $3.68, representing an 11.2% increase from the prior-year reported figure. Revenue came in at $3.22 billion, up from $3.14 billion last year. The company trades at a discount to its competitors, with a forward price-to-earnings ratio (forward P/E ratio) of 16.79 compared to 19.68 for the insurance brokers industry average. As of May 1, 2020, Aon stock issues a 1.03% dividend yield and has slipped 17.10% on the year.
The insurance giant’s share price has staged an impressive rally from multi-year support at $150 but has spent the past two weeks retracing about half of that move. However, the pullback may be short lived, with the stock yesterday forming a bullish piercing pattern near intermediate support to indicate a potential upside reversal. Those who buy here should place a stop-loss order below $165 and book profits at $195, where the price runs into a confluence of resistance from horizontal price action and the 200-day SMA.