Intrinsic value of Brown & Brown, Inc. - BRO

Previous Close

$31.85

  Intrinsic Value

$41.62

stock screener

  Rating & Target

buy

+31%

Previous close

$31.85

 
Intrinsic value

$41.62

 
Up/down potential

+31%

 
Rating

buy

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

We calculate the intrinsic value of BRO 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 0001), $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 8.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
Revenue, $m
  2,161
  2,314
  2,473
  2,638
  2,809
  2,988
  3,174
  3,368
  3,569
  3,780
  3,999
  4,228
  4,466
  4,716
  4,976
  5,249
  5,534
  5,832
  6,143
  6,470
  6,811
  7,169
  7,544
  7,936
  8,347
  8,779
  9,231
  9,704
  10,201
  10,722
Variable operating expenses, $m
  1,559
  1,638
  1,721
  1,807
  1,897
  1,990
  2,087
  2,187
  2,292
  2,402
  2,083
  2,202
  2,327
  2,457
  2,592
  2,734
  2,883
  3,038
  3,200
  3,370
  3,548
  3,734
  3,929
  4,134
  4,348
  4,573
  4,808
  5,055
  5,314
  5,585
Fixed operating expenses, $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
Total operating expenses, $m
  1,559
  1,638
  1,721
  1,807
  1,897
  1,990
  2,087
  2,187
  2,292
  2,402
  2,083
  2,202
  2,327
  2,457
  2,592
  2,734
  2,883
  3,038
  3,200
  3,370
  3,548
  3,734
  3,929
  4,134
  4,348
  4,573
  4,808
  5,055
  5,314
  5,585
Operating income, $m
  602
  675
  751
  831
  913
  998
  1,087
  1,180
  1,277
  1,378
  1,916
  2,025
  2,140
  2,259
  2,384
  2,515
  2,651
  2,794
  2,943
  3,100
  3,263
  3,435
  3,614
  3,802
  3,999
  4,206
  4,422
  4,649
  4,887
  5,137
EBITDA, $m
  1,107
  1,186
  1,267
  1,351
  1,439
  1,531
  1,626
  1,725
  1,829
  1,936
  2,049
  2,166
  2,288
  2,416
  2,550
  2,689
  2,835
  2,988
  3,148
  3,315
  3,490
  3,673
  3,865
  4,066
  4,277
  4,498
  4,729
  4,972
  5,227
  5,494
Interest expense (income), $m
  38
  81
  96
  111
  127
  143
  160
  178
  196
  215
  235
  256
  278
  300
  324
  348
  374
  401
  429
  459
  489
  522
  556
  591
  628
  667
  707
  750
  795
  842
  891
Earnings before tax, $m
  521
  579
  640
  704
  770
  838
  910
  984
  1,062
  1,143
  1,660
  1,748
  1,840
  1,936
  2,036
  2,141
  2,250
  2,365
  2,485
  2,610
  2,741
  2,879
  3,023
  3,174
  3,333
  3,498
  3,672
  3,855
  4,046
  4,246
Tax expense, $m
  141
  156
  173
  190
  208
  226
  246
  266
  287
  308
  448
  472
  497
  523
  550
  578
  608
  638
  671
  705
  740
  777
  816
  857
  900
  945
  992
  1,041
  1,092
  1,147
Net income, $m
  380
  423
  468
  514
  562
  612
  664
  718
  775
  834
  1,212
  1,276
  1,343
  1,413
  1,486
  1,563
  1,643
  1,726
  1,814
  1,905
  2,001
  2,102
  2,207
  2,317
  2,433
  2,554
  2,681
  2,814
  2,954
  3,100

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  7,179
  7,687
  8,215
  8,763
  9,333
  9,927
  10,545
  11,188
  11,858
  12,557
  13,285
  14,045
  14,839
  15,667
  16,533
  17,438
  18,384
  19,374
  20,410
  21,494
  22,628
  23,817
  25,062
  26,366
  27,732
  29,165
  30,666
  32,241
  33,892
  35,623
Adjusted assets (=assets-cash), $m
  7,179
  7,687
  8,215
  8,763
  9,333
  9,927
  10,545
  11,188
  11,858
  12,557
  13,285
  14,045
  14,839
  15,667
  16,533
  17,438
  18,384
  19,374
  20,410
  21,494
  22,628
  23,817
  25,062
  26,366
  27,732
  29,165
  30,666
  32,241
  33,892
  35,623
Revenue / Adjusted assets
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
Average production assets, $m
  2,157
  2,309
  2,468
  2,632
  2,804
  2,982
  3,168
  3,361
  3,562
  3,772
  3,991
  4,219
  4,458
  4,706
  4,967
  5,238
  5,523
  5,820
  6,131
  6,457
  6,798
  7,155
  7,528
  7,920
  8,331
  8,761
  9,212
  9,685
  10,181
  10,701
Working capital, $m
  -383
  -410
  -438
  -467
  -497
  -529
  -562
  -596
  -632
  -669
  -708
  -748
  -791
  -835
  -881
  -929
  -979
  -1,032
  -1,087
  -1,145
  -1,206
  -1,269
  -1,335
  -1,405
  -1,477
  -1,554
  -1,634
  -1,718
  -1,806
  -1,898
Total debt, $m
  1,775
  2,054
  2,345
  2,647
  2,962
  3,289
  3,629
  3,983
  4,353
  4,738
  5,139
  5,558
  5,995
  6,452
  6,929
  7,427
  7,949
  8,494
  9,065
  9,662
  10,287
  10,942
  11,628
  12,346
  13,099
  13,889
  14,716
  15,584
  16,493
  17,447
Total liabilities, $m
  3,956
  4,236
  4,526
  4,828
  5,143
  5,470
  5,810
  6,164
  6,534
  6,919
  7,320
  7,739
  8,176
  8,633
  9,110
  9,608
  10,130
  10,675
  11,246
  11,843
  12,468
  13,123
  13,809
  14,528
  15,281
  16,070
  16,897
  17,765
  18,674
  19,628
Total equity, $m
  3,224
  3,451
  3,688
  3,935
  4,191
  4,457
  4,735
  5,023
  5,324
  5,638
  5,965
  6,306
  6,663
  7,035
  7,423
  7,830
  8,255
  8,699
  9,164
  9,651
  10,160
  10,694
  11,253
  11,838
  12,452
  13,095
  13,769
  14,476
  15,217
  15,995
Total liabilities and equity, $m
  7,180
  7,687
  8,214
  8,763
  9,334
  9,927
  10,545
  11,187
  11,858
  12,557
  13,285
  14,045
  14,839
  15,668
  16,533
  17,438
  18,385
  19,374
  20,410
  21,494
  22,628
  23,817
  25,062
  26,366
  27,733
  29,165
  30,666
  32,241
  33,891
  35,623
Debt-to-equity ratio
  0.550
  0.600
  0.640
  0.670
  0.710
  0.740
  0.770
  0.790
  0.820
  0.840
  0.860
  0.880
  0.900
  0.920
  0.930
  0.950
  0.960
  0.980
  0.990
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.080
  1.090
Adjusted equity ratio
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449
  0.449

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  380
  423
  468
  514
  562
  612
  664
  718
  775
  834
  1,212
  1,276
  1,343
  1,413
  1,486
  1,563
  1,643
  1,726
  1,814
  1,905
  2,001
  2,102
  2,207
  2,317
  2,433
  2,554
  2,681
  2,814
  2,954
  3,100
Depreciation, amort., depletion, $m
  505
  510
  515
  521
  527
  533
  539
  545
  552
  559
  133
  141
  149
  157
  166
  175
  184
  194
  204
  215
  227
  238
  251
  264
  278
  292
  307
  323
  339
  357
Funds from operations, $m
  885
  933
  983
  1,035
  1,089
  1,145
  1,203
  1,264
  1,327
  1,393
  1,345
  1,417
  1,492
  1,570
  1,652
  1,737
  1,827
  1,920
  2,018
  2,121
  2,228
  2,340
  2,458
  2,581
  2,710
  2,846
  2,988
  3,137
  3,293
  3,457
Change in working capital, $m
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
Cash from operations, $m
  911
  960
  1,011
  1,064
  1,119
  1,176
  1,236
  1,298
  1,363
  1,430
  1,384
  1,457
  1,534
  1,614
  1,698
  1,785
  1,877
  1,973
  2,073
  2,178
  2,288
  2,404
  2,524
  2,651
  2,783
  2,922
  3,068
  3,221
  3,381
  3,549
Maintenance CAPEX, $m
  -67
  -72
  -77
  -82
  -88
  -93
  -99
  -106
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -166
  -175
  -184
  -194
  -204
  -215
  -227
  -238
  -251
  -264
  -278
  -292
  -307
  -323
  -339
New CAPEX, $m
  -146
  -152
  -158
  -165
  -171
  -178
  -186
  -193
  -201
  -210
  -219
  -228
  -238
  -249
  -260
  -272
  -284
  -297
  -311
  -326
  -341
  -357
  -374
  -392
  -411
  -430
  -451
  -473
  -496
  -520
Cash from investing activities, $m
  -213
  -224
  -235
  -247
  -259
  -271
  -285
  -299
  -313
  -329
  -345
  -361
  -379
  -398
  -417
  -438
  -459
  -481
  -505
  -530
  -556
  -584
  -612
  -643
  -675
  -708
  -743
  -780
  -819
  -859
Free cash flow, $m
  698
  736
  776
  817
  860
  905
  951
  999
  1,049
  1,102
  1,039
  1,096
  1,155
  1,217
  1,281
  1,348
  1,418
  1,492
  1,568
  1,648
  1,732
  1,820
  1,912
  2,008
  2,109
  2,214
  2,325
  2,441
  2,562
  2,689
Issuance/(repayment) of debt, $m
  268
  280
  291
  302
  314
  327
  340
  354
  369
  385
  401
  419
  437
  457
  477
  499
  521
  545
  571
  597
  625
  655
  686
  719
  753
  789
  827
  867
  910
  954
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  268
  280
  291
  302
  314
  327
  340
  354
  369
  385
  401
  419
  437
  457
  477
  499
  521
  545
  571
  597
  625
  655
  686
  719
  753
  789
  827
  867
  910
  954
Total cash flow (excl. dividends), $m
  966
  1,016
  1,066
  1,119
  1,174
  1,232
  1,291
  1,354
  1,419
  1,487
  1,440
  1,515
  1,592
  1,673
  1,758
  1,847
  1,940
  2,037
  2,139
  2,246
  2,357
  2,475
  2,598
  2,727
  2,862
  3,003
  3,152
  3,308
  3,472
  3,643
Retained Cash Flow (-), $m
  -223
  -228
  -237
  -246
  -256
  -266
  -277
  -289
  -301
  -314
  -327
  -341
  -356
  -372
  -389
  -406
  -425
  -444
  -465
  -487
  -510
  -534
  -559
  -586
  -614
  -643
  -674
  -707
  -741
  -777
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
  743
  788
  829
  873
  918
  965
  1,014
  1,065
  1,118
  1,173
  1,113
  1,173
  1,236
  1,301
  1,369
  1,440
  1,515
  1,592
  1,674
  1,759
  1,848
  1,941
  2,039
  2,141
  2,248
  2,360
  2,478
  2,601
  2,730
  2,866
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  713
  721
  722
  719
  712
  700
  685
  666
  642
  615
  529
  501
  470
  437
  402
  366
  330
  293
  258
  224
  191
  161
  134
  109
  87
  69
  53
  40
  30
  22
Current shareholders' claim on cash, %
  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

Brown & Brown, Inc. is a diversified insurance agency, wholesale brokerage, insurance programs and service company. The Company markets and sells insurance products and services, in the property, casualty and employee benefits areas. It provides its customers with non-investment insurance contracts, as well as other customized risk management products and services. It operates through four segments: the Retail Segment, which provides a range of insurance products and services to commercial, public and quasi-public entities, and to professional and individual customers; the National Programs Segment, which acts as a managing general agent, provides professional liability and related package products; the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial and personal lines insurance, and the Services Segment, which provides insurance-related services, including third-party claims administration and medical utilization management services.

FINANCIAL RATIOS  of  Brown & Brown, Inc. (BRO)

Valuation Ratios
P/E Ratio 17.4
Price to Sales 2.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 12.5
Growth Rates
Sales Growth Rate 6.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 2.4%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 43.1%
Total Debt to Equity 45.5%
Interest Coverage 12
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 5.3%
Return On Total Capital 7.6%
Ret/ On T. Cap. - 3 Yr. Avg. 7.4%
Return On Equity 11.4%
Return On Equity - 3 Yr. Avg. 10.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 32.3%
EBITDA Margin - 3 Yr. Avg. 31.7%
Operating Margin 26.1%
Oper. Margin - 3 Yr. Avg. 26.4%
Pre-Tax Margin 24%
Pre-Tax Margin - 3 Yr. Avg. 23.3%
Net Profit Margin 14.5%
Net Profit Margin - 3 Yr. Avg. 14.1%
Effective Tax Rate 39.4%
Eff/ Tax Rate - 3 Yr. Avg. 39.4%
Payout Ratio 27.2%

BRO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BRO stock intrinsic value calculation we used $2014 million for the last fiscal year's total revenue generated by Brown & Brown, Inc.. The default revenue input number comes from 0001 income statement of Brown & Brown, Inc.. 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 BRO stock valuation model: a) initial revenue growth rate of 7.3% 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 4.3%, whose default value for BRO is calculated based on our internal credit rating of Brown & Brown, Inc., 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 Brown & Brown, Inc..
    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 BRO stock the variable cost ratio is equal to 73.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BRO 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 5.4% for Brown & Brown, Inc..

Corporate tax rate of 27% is the nominal tax rate for Brown & Brown, Inc.. 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 BRO 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 BRO are equal to 99.8%.

Life of production assets of 36 years is the average useful life of capital assets used in Brown & Brown, Inc. 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 BRO is equal to -17.7%. 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 - $3000.568 million for Brown & Brown, Inc. - 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 279.701 million for Brown & Brown, Inc. 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 Brown & Brown, Inc. at the current share price and the inputted number of shares is $8.9 billion.

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