Intrinsic value of Arthur J. Gallagher - AJG

Previous Close

$57.94

  Intrinsic Value

$80.18

stock screener

  Rating & Target

buy

+38%

  Value-price divergence*

-60%

Previous close

$57.94

 
Intrinsic value

$80.18

 
Up/down potential

+38%

 
Rating

buy

 
Value-price divergence*

-60%

Our model is not good at valuating stocks of financial companies, such as AJG.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AJG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 10.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.76
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
Revenue, $m
  5,595
  6,082
  6,588
  7,115
  7,663
  8,232
  8,824
  9,438
  10,077
  10,742
  11,433
  12,152
  12,900
  13,680
  14,493
  15,340
  16,224
  17,147
  18,110
  19,116
  20,167
  21,266
  22,416
  23,618
  24,876
  26,194
  27,573
  29,017
  30,531
  32,116
  33,778
Variable operating expenses, $m
 
  3,920
  4,216
  4,523
  4,842
  5,173
  5,518
  5,876
  6,248
  6,635
  7,038
  7,080
  7,516
  7,971
  8,444
  8,938
  9,453
  9,990
  10,552
  11,138
  11,750
  12,391
  13,060
  13,761
  14,494
  15,262
  16,065
  16,907
  17,789
  18,713
  19,681
Fixed operating expenses, $m
 
  1,565
  1,604
  1,644
  1,686
  1,728
  1,771
  1,815
  1,861
  1,907
  1,955
  2,004
  2,054
  2,105
  2,158
  2,212
  2,267
  2,324
  2,382
  2,441
  2,502
  2,565
  2,629
  2,695
  2,762
  2,831
  2,902
  2,974
  3,049
  3,125
  3,203
Total operating expenses, $m
  5,128
  5,485
  5,820
  6,167
  6,528
  6,901
  7,289
  7,691
  8,109
  8,542
  8,993
  9,084
  9,570
  10,076
  10,602
  11,150
  11,720
  12,314
  12,934
  13,579
  14,252
  14,956
  15,689
  16,456
  17,256
  18,093
  18,967
  19,881
  20,838
  21,838
  22,884
Operating income, $m
  467
  596
  769
  948
  1,136
  1,331
  1,535
  1,747
  1,968
  2,199
  2,440
  3,068
  3,330
  3,604
  3,891
  4,191
  4,504
  4,833
  5,176
  5,537
  5,914
  6,311
  6,726
  7,162
  7,620
  8,101
  8,606
  9,136
  9,693
  10,279
  10,894
EBITDA, $m
  818
  1,091
  1,273
  1,463
  1,661
  1,868
  2,083
  2,307
  2,541
  2,784
  3,039
  3,304
  3,581
  3,870
  4,172
  4,488
  4,819
  5,165
  5,528
  5,908
  6,306
  6,723
  7,161
  7,621
  8,103
  8,609
  9,141
  9,699
  10,286
  10,902
  11,550
Interest expense (income), $m
  113
  99
  126
  155
  185
  216
  248
  281
  316
  352
  390
  429
  469
  511
  556
  601
  649
  699
  751
  806
  862
  922
  984
  1,049
  1,117
  1,188
  1,262
  1,340
  1,421
  1,507
  1,596
Earnings before tax, $m
  357
  497
  642
  793
  951
  1,115
  1,287
  1,466
  1,652
  1,847
  2,050
  2,639
  2,861
  3,093
  3,335
  3,589
  3,855
  4,133
  4,425
  4,731
  5,052
  5,389
  5,742
  6,114
  6,503
  6,913
  7,344
  7,796
  8,272
  8,772
  9,298
Tax expense, $m
  -88
  134
  173
  214
  257
  301
  347
  396
  446
  499
  554
  713
  772
  835
  901
  969
  1,041
  1,116
  1,195
  1,277
  1,364
  1,455
  1,550
  1,651
  1,756
  1,867
  1,983
  2,105
  2,233
  2,368
  2,510
Net income, $m
  414
  363
  469
  579
  694
  814
  939
  1,070
  1,206
  1,348
  1,497
  1,927
  2,089
  2,258
  2,435
  2,620
  2,814
  3,017
  3,230
  3,454
  3,688
  3,934
  4,192
  4,463
  4,748
  5,047
  5,361
  5,691
  6,038
  6,403
  6,787

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  546
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  11,490
  11,902
  12,893
  13,924
  14,996
  16,110
  17,267
  18,470
  19,721
  21,021
  22,373
  23,780
  25,245
  26,771
  28,362
  30,020
  31,750
  33,555
  35,440
  37,408
  39,466
  41,617
  43,866
  46,219
  48,682
  51,259
  53,959
  56,785
  59,747
  62,850
  66,102
Adjusted assets (=assets-cash), $m
  10,944
  11,902
  12,893
  13,924
  14,996
  16,110
  17,267
  18,470
  19,721
  21,021
  22,373
  23,780
  25,245
  26,771
  28,362
  30,020
  31,750
  33,555
  35,440
  37,408
  39,466
  41,617
  43,866
  46,219
  48,682
  51,259
  53,959
  56,785
  59,747
  62,850
  66,102
Revenue / Adjusted assets
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
  0.511
Average production assets, $m
  1,663
  1,806
  1,957
  2,113
  2,276
  2,445
  2,621
  2,803
  2,993
  3,190
  3,395
  3,609
  3,831
  4,063
  4,304
  4,556
  4,819
  5,093
  5,379
  5,677
  5,990
  6,316
  6,657
  7,015
  7,388
  7,779
  8,189
  8,618
  9,068
  9,539
  10,032
Working capital, $m
  -196
  -43
  -46
  -50
  -54
  -58
  -62
  -66
  -71
  -75
  -80
  -85
  -90
  -96
  -101
  -107
  -114
  -120
  -127
  -134
  -141
  -149
  -157
  -165
  -174
  -183
  -193
  -203
  -214
  -225
  -236
Total debt, $m
  2,848
  2,941
  3,606
  4,298
  5,017
  5,765
  6,541
  7,348
  8,187
  9,060
  9,967
  10,912
  11,895
  12,919
  13,986
  15,098
  16,259
  17,470
  18,735
  20,056
  21,437
  22,880
  24,389
  25,968
  27,620
  29,350
  31,161
  33,058
  35,045
  37,127
  39,309
Total liabilities, $m
  7,893
  7,986
  8,651
  9,343
  10,062
  10,810
  11,586
  12,393
  13,232
  14,105
  15,012
  15,957
  16,940
  17,964
  19,031
  20,143
  21,304
  22,515
  23,780
  25,101
  26,482
  27,925
  29,434
  31,013
  32,665
  34,395
  36,206
  38,103
  40,090
  42,172
  44,354
Total equity, $m
  3,597
  3,916
  4,242
  4,581
  4,934
  5,300
  5,681
  6,077
  6,488
  6,916
  7,361
  7,824
  8,306
  8,808
  9,331
  9,877
  10,446
  11,040
  11,660
  12,307
  12,984
  13,692
  14,432
  15,206
  16,016
  16,864
  17,752
  18,682
  19,657
  20,678
  21,748
Total liabilities and equity, $m
  11,490
  11,902
  12,893
  13,924
  14,996
  16,110
  17,267
  18,470
  19,720
  21,021
  22,373
  23,781
  25,246
  26,772
  28,362
  30,020
  31,750
  33,555
  35,440
  37,408
  39,466
  41,617
  43,866
  46,219
  48,681
  51,259
  53,958
  56,785
  59,747
  62,850
  66,102
Debt-to-equity ratio
  0.792
  0.750
  0.850
  0.940
  1.020
  1.090
  1.150
  1.210
  1.260
  1.310
  1.350
  1.390
  1.430
  1.470
  1.500
  1.530
  1.560
  1.580
  1.610
  1.630
  1.650
  1.670
  1.690
  1.710
  1.720
  1.740
  1.760
  1.770
  1.780
  1.800
  1.810
Adjusted equity ratio
  0.279
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329
  0.329

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  414
  363
  469
  579
  694
  814
  939
  1,070
  1,206
  1,348
  1,497
  1,927
  2,089
  2,258
  2,435
  2,620
  2,814
  3,017
  3,230
  3,454
  3,688
  3,934
  4,192
  4,463
  4,748
  5,047
  5,361
  5,691
  6,038
  6,403
  6,787
Depreciation, amort., depletion, $m
  351
  495
  505
  515
  526
  537
  548
  560
  572
  585
  599
  236
  250
  266
  281
  298
  315
  333
  352
  371
  391
  413
  435
  458
  483
  508
  535
  563
  593
  623
  656
Funds from operations, $m
  653
  858
  973
  1,094
  1,220
  1,351
  1,488
  1,630
  1,779
  1,934
  2,095
  2,163
  2,339
  2,523
  2,716
  2,918
  3,129
  3,350
  3,582
  3,825
  4,079
  4,347
  4,627
  4,921
  5,230
  5,555
  5,896
  6,254
  6,631
  7,027
  7,443
Change in working capital, $m
  31
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from operations, $m
  622
  861
  977
  1,098
  1,224
  1,355
  1,492
  1,634
  1,783
  1,938
  2,100
  2,168
  2,344
  2,529
  2,722
  2,924
  3,135
  3,357
  3,589
  3,832
  4,087
  4,354
  4,635
  4,930
  5,239
  5,564
  5,906
  6,265
  6,642
  7,038
  7,455
Maintenance CAPEX, $m
  0
  -109
  -118
  -128
  -138
  -149
  -160
  -171
  -183
  -196
  -209
  -222
  -236
  -250
  -266
  -281
  -298
  -315
  -333
  -352
  -371
  -391
  -413
  -435
  -458
  -483
  -508
  -535
  -563
  -593
  -623
New CAPEX, $m
  -218
  -143
  -150
  -156
  -163
  -169
  -176
  -183
  -190
  -197
  -205
  -214
  -222
  -232
  -241
  -252
  -263
  -274
  -286
  -299
  -312
  -326
  -341
  -357
  -374
  -391
  -410
  -429
  -449
  -471
  -494
Cash from investing activities, $m
  -569
  -252
  -268
  -284
  -301
  -318
  -336
  -354
  -373
  -393
  -414
  -436
  -458
  -482
  -507
  -533
  -561
  -589
  -619
  -651
  -683
  -717
  -754
  -792
  -832
  -874
  -918
  -964
  -1,012
  -1,064
  -1,117
Free cash flow, $m
  53
  609
  708
  813
  923
  1,037
  1,156
  1,281
  1,410
  1,545
  1,687
  1,732
  1,886
  2,047
  2,215
  2,391
  2,575
  2,768
  2,970
  3,181
  3,404
  3,636
  3,881
  4,138
  4,407
  4,690
  4,988
  5,300
  5,629
  5,974
  6,338
Issuance/(repayment) of debt, $m
  397
  639
  665
  692
  719
  747
  777
  807
  839
  872
  907
  944
  983
  1,024
  1,067
  1,113
  1,161
  1,211
  1,265
  1,321
  1,381
  1,443
  1,509
  1,579
  1,652
  1,730
  1,811
  1,897
  1,987
  2,082
  2,182
Issuance/(repurchase) of shares, $m
  -55
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  306
  639
  665
  692
  719
  747
  777
  807
  839
  872
  907
  944
  983
  1,024
  1,067
  1,113
  1,161
  1,211
  1,265
  1,321
  1,381
  1,443
  1,509
  1,579
  1,652
  1,730
  1,811
  1,897
  1,987
  2,082
  2,182
Total cash flow (excl. dividends), $m
  337
  1,248
  1,374
  1,505
  1,642
  1,784
  1,933
  2,088
  2,249
  2,418
  2,594
  2,676
  2,869
  3,071
  3,282
  3,503
  3,736
  3,979
  4,234
  4,503
  4,784
  5,080
  5,390
  5,716
  6,059
  6,420
  6,799
  7,197
  7,616
  8,056
  8,520
Retained Cash Flow (-), $m
  41
  -319
  -326
  -339
  -353
  -366
  -381
  -396
  -411
  -428
  -445
  -463
  -482
  -502
  -523
  -546
  -569
  -594
  -620
  -648
  -677
  -708
  -740
  -774
  -810
  -848
  -888
  -930
  -974
  -1,021
  -1,070
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  930
  1,047
  1,166
  1,289
  1,418
  1,552
  1,692
  1,838
  1,990
  2,149
  2,213
  2,387
  2,569
  2,759
  2,958
  3,167
  3,385
  3,614
  3,855
  4,107
  4,372
  4,650
  4,942
  5,249
  5,572
  5,911
  6,267
  6,642
  7,036
  7,450
Discount rate, %
 
  6.50
  6.83
  7.17
  7.52
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
PV of cash for distribution, $m
 
  873
  918
  947
  965
  970
  962
  943
  912
  872
  822
  732
  674
  611
  547
  481
  417
  355
  297
  244
  196
  155
  119
  90
  66
  48
  34
  23
  15
  10
  6
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Arthur J. Gallagher & Co., together with its subsidiaries, provides insurance brokerage and risk management services in the United States and internationally. Its Brokerage segment consists of retail and wholesale insurance brokerage operations. The company’s retail brokerage operations negotiate and place property/casualty, employer-provided health and welfare insurance, and healthcare exchange and retirement solutions primarily for middle-market commercial, industrial, public entity, religious, and not-for-profit entities. This segment’s wholesale brokerage operations assist brokers and agents in the placement of specialized and hard-to-place insurance programs. It also acts as a brokerage wholesaler, and managing general agent or managing general underwriter distributing specialized insurance coverages for insurance carriers; and performs activities, including marketing, underwriting, issuing policies, collecting premiums, appointing and supervising other agents, paying claims, and negotiating reinsurance. The company’s Risk Management segment offers contract claim settlement and administration services for enterprises that choose to self-insure their property/casualty coverages; and for insurance companies that choose to outsource their property/casualty claims departments. This segment also offers integrated disability management programs, as well as information, risk control consulting, and appraisal services. The company offers its services through a network of insurance brokers and consultants to various commercial, industrial, institutional, and governmental organizations. Arthur J. Gallagher & Co. was founded in 1927 and is headquartered in Itasca, Illinois.

FINANCIAL RATIOS  of  Arthur J. Gallagher (AJG)

Valuation Ratios
P/E Ratio 25
Price to Sales 1.8
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 16.6
Price to Free Cash Flow 25.6
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 120.2%
Cap. Spend. - 3 Yr. Gr. Rate 18.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.3
LT Debt to Equity 59.6%
Total Debt to Equity 79.2%
Interest Coverage 4
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 11.4%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 29.4%
Gross Margin - 3 Yr. Avg. 29.9%
EBITDA Margin 14.7%
EBITDA Margin - 3 Yr. Avg. 13.8%
Operating Margin 8.3%
Oper. Margin - 3 Yr. Avg. 7.8%
Pre-Tax Margin 6.4%
Pre-Tax Margin - 3 Yr. Avg. 5.9%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 6.9%
Effective Tax Rate -24.6%
Eff/ Tax Rate - 3 Yr. Avg. -23.5%
Payout Ratio 65.7%

AJG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AJG stock intrinsic value calculation we used $5595 million for the last fiscal year's total revenue generated by Arthur J. Gallagher. The default revenue input number comes from 2016 income statement of Arthur J. Gallagher. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AJG stock valuation model: a) initial revenue growth rate of 8.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 6.5%, whose default value for AJG is calculated based on our internal credit rating of Arthur J. Gallagher, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Arthur J. Gallagher.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AJG stock the variable cost ratio is equal to 65%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1527 million in the base year in the intrinsic value calculation for AJG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for Arthur J. Gallagher.

Corporate tax rate of 27% is the nominal tax rate for Arthur J. Gallagher. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AJG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AJG are equal to 29.7%.

Life of production assets of 15.3 years is the average useful life of capital assets used in Arthur J. Gallagher operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AJG is equal to -0.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3597 million for Arthur J. Gallagher - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 178.497 million for Arthur J. Gallagher is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Arthur J. Gallagher at the current share price and the inputted number of shares is $10.3 billion.

RELATED COMPANIES Price Int.Val. Rating
BRO Brown&Brown 43.63 89.30  str.buy
WLTW Willis Towers 148.44 163.32  hold
MMC Marsh&McLennan 77.36 83.10  hold
PN Patriot Nation 2.26 0.89  str.sell
CRVL Corvel 51.10 29.48  sell
EHTH eHealth 17.74 12.72  sell

COMPANY NEWS

▶ Arthur J. Gallagher & Co. Acquires GPL Assurance Inc.   [Aug-03-17 04:47PM  PR Newswire]
▶ Arthur J. Gallagher beats Street 2Q forecasts   [Jul-27-17 09:53PM  Associated Press]
▶ Arthur J. Gallagher beats Street 2Q forecasts   [05:09PM  Associated Press]
▶ Arthur J. Gallagher beats Street 1Q forecasts   [Apr-27-17 04:44PM  Associated Press]
▶ Arthur J. Gallagher & Co. Acquires Kelly Financial, Inc.   [Feb-21-17 02:00PM  PR Newswire]
▶ [$$] For Many Firms, Trump Dominates Earnings Calls   [Feb-03-17 01:32AM  at The Wall Street Journal]
▶ [$$] For Many Firms, Trump Dominates Earnings Calls   [06:20AM  at The Wall Street Journal]
▶ Arthur J. Gallagher & Co. Acquires Hill, Chesson & Woody   [Jan-13-17 03:53PM  PR Newswire]
Stock chart of AJG Financial statements of AJG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.