Willis Towers Watson Gets Upgrade From Goldman Sachs As Analyst Sees Turnaround By 2HFY23

Goldman Sachs analyst Robert Cox upgraded Willis Towers Watson WTW from Neutral to Buy with a $290 price target.

WTW has shown substantial progress on turnaround initiatives and saw a material improvement in WTW fundamentals coinciding with abating tailwinds for more concentrated P&C and commission-oriented brokers, particularly in the back half of 2023 and into 2024. 

While Cox expected progress could be lumpy, reflected in valuation, he noted that multiple expansion is not an upside driver. 

Cox expected 5%+ organic growth for Risk & Broking and Health, Wealth, and Career in 2023, with WTW organic growth consistent with large account peers in 2H23 and beyond in a Monday note titled "Turnaround underway: Upgrade to Buy as fundamental gaps to peers narrow."

These expectations reflected the analyst's more granular modeling of WTW organic growth by business, with estimates for each business either in line with or more conservative than management's long-term expectations. 

Additionally, the company revamped its talent base through 9.7K new hires in 2022, bringing its talent base back to 2019 levels despite significant divestitures. 

Cox believes that peak benefits from these talent additions have yet to materialize, despite WTW already achieving organic growth levels relatively consistent with our forecasts.

WTW's cost savings, combined with a shift to more opportunistic hiring from aggressive hiring and operating leverage from ~5% organic growth, create a powerful combination for margin expansion.

By 2024, Cox expects WTW's key fundamental metrics to be similar to the 2016-2019 period (before the announcement of the intended combination with Aon Plc AON) when WTW traded at a 15% discount to large account-focused peers versus the 25% discount today.

WTW has reported two quarters of 5%+ organic growth, an achievement the analyst previously believed would take longer to materialize. With accelerating contributions from significant talent investments made in 2022, the analyst thinks growth can continue. 

Furthermore, P&C pricing and inflation will likely continue to decelerate, leading to a more even playing field versus more P&C-oriented peers, particularly in the back half of 2023 and 2024.

Ultimately, Cox saw WTW hitting its stride over the coming years as above-average tailwinds for more P&C- and commission-oriented peers gradually abate, making basic comparisons to peers more favorable.

Price Action: WTW shares traded higher by 1.16% at $237.43 on the last check Monday.