7. Brown & Brown, Inc. (NYSE:BRO)
3-Year Share Price Gains as of December 4: 70.28%
Brown & Brown, Inc. (NYSE:BRO) is an American insurance company that specializes in risk management. The company reported strong earnings in the third quarter of 2024, with its revenues coming in at $1.19 billion, which showed an 11% growth from the same period last year. Its net income also jumped by 33% on a YoY basis at $234 million.
Madison Investments highlighted the performance of Brown & Brown, Inc. (NYSE:BRO) in its Q4 2023 investor letter. The firm also mentioned the strengths of its business and the company’s ability to overcome the obstacles it encountered.
“Whether it’s performance by market capitalization, sectors, or any other factor, stock markets are intrinsically cyclical. Some cycles are long-term, taking decades to unfold, and some are short-term, lasting months, weeks, or even days. Many are medium in length, lasting two, three, or several years. Most cycles occur because a trend often creates the seeds of its own reversal. We at Madison Investments are certain that market cycles will occur, but it doesn’t mean we can predict their timing or magnitude. We don’t think we can. This is perhaps a major difference between us and many other investors. Most investors believe it’s their job to time market cycles despite overwhelming evidence that it’s nearly impossible to do so with enough accuracy to make such an effort profitable over long periods. We avoid making calls about market cycles and spend zero minutes thinking about them, not because we don’t think they can be important, but because we think they’re inherently unpredictable in duration.
This mentality of our team is generally true for other kinds of cycles, such as macroeconomic, industry, or company-specific, but is a bit more nuanced for those. We make no explicit prediction about cycles on which we base a buy or sell decision. Still, we are acutely aware of the various cyclical forces at work, and depending on whether we think we have the ability to assess the length or intensity of such, we may incorporate them to various degrees.
Let’s take another example of a recession-resistant investment we’ve held for many years, Brown & Brown, Inc. (NYSE:BRO). We first purchased this company in 2007 in our Mid Cap strategy. As an insurance broker, it gets paid a commission on the premiums that its mostly small business clients pay. Since clients need to maintain insurance coverage even in business downturns, Brown & Brown’s revenues tend to be very steady year by year. Yet, our investment underperformed for the seven years after our initial purchase, and it wasn’t because we paid a high price – the stock traded at a moderate price to earnings (P/E) of 17x at the time. The culprit was profits. After increasing sixfold over the seven years before our purchase, earnings per share were essentially flat from 2007 to 2014, going from $0.68 per share to $0.71 per share. No wonder our investment underperformed the Russell Midcap benchmark over that period. The sources of sluggish profits were manifold, including management turnover, a change in its acquisition strategy, moderate under-investments in dealing with the shift towards more complex insurance needs among its customer base, and a heavy exposure to Florida, a state hit especially hard during the Great Financial Crisis…” (Click here to read the full text)
Brown & Brown, Inc. (NYSE:BRO) has a strong cash position, which promises consistent dividend growth. The company ended the quarter with $957 million available in cash and cash equivalents, up from $700 million nine months ago. Moreover, its operating cash flow came in at $813 million, growing from $704 million in the prior-year period.
On October 23, Brown & Brown, Inc. (NYSE:BRO) declared a 15.4% hike in its quarterly dividend to $0.15 per share. Through this increase, the company stretched its dividend growth streak to 31 years, which makes BRO one of the best dividend knights on our list. The stock supports a dividend yield of 0.54%, as of December 5.
The number of hedge funds tracked by Insider Monkey owning stakes in Brown & Brown, Inc. (NYSE:BRO) jumped to 35 in Q3 2024, from 26 in the previous quarter. The overall value of these stakes is more than $1.57 billion. Select Equity Group was the company’s leading stakeholder in Q3.
