Plenty of businesses are freaking out about federal healthcare reform and generalized economic uncertainty. Not Towers Watson (TW). For this company, it has been something of a boon.
TW takes care of functions like corporate benefits, risk and finance services, and technology and administrative duties — normal management services and consulting stuff.
But the outsized opportunity looks to be in its Exchange Solutions segment, which operates private health insurance exchanges for employer-sponsored coverage for corporate employees and retirees.
It also doesn’t hurt the bull case that TW has a long history of exceeding analysts’ profit expectations. Indeed, the firm has topped Wall Street’s bottom-line estimates every quarter for more than two years.
That all adds up to a stock that has gained 40% year-to-date, beating the broader market by 24 percentage points. And yet Towers’ valuation, while not a screaming bargain, still looks reasonable given forecast earnings growth.
The forward P/E of 13.5 is higher than TW’s own five-year average of 12.5, but again, that multiple expansion seems warranted given a long-term growth rate of 10.5% — more than a full percentage point better than that of the S&P 500.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.