Insider Buying at Marsh McLennan

The consulting business can be compared to that of Accenture Plc (NYSE:ACN) and Booz Allen Hamilton Holding Corporation (NYSE:BAH). There is a significant discrepancy in terms of market sentiment on these companies, though recent financial performance has been varied as well. Accenture’s earnings were up 9% in its most recent quarterly report (for the fiscal quarter ending in November) compared to the same period in the previous fiscal year, with revenue lagging there as well, yet the stock carries trailing and forward P/Es of 21 and 16 respectively. That seems a bit pricy to us, and we think that we would avoid Accenture. Booz Allen has seen its business decline recently (the company does do quite a bit of business with the federal government and may suffer from spending cuts) and the stock is down 22% in the last year. It trades at 9 times earnings, whether we consider trailing results or forward estimates, and at a five-year PEG ratio of 0.7. This is certainly cheap, and it might be worth looking into how damaging spending cuts would be to Booz Allen.

Marsh & McLennan and some of its peers appear to be only modestly increasing their revenue, and so we would expect that over time these companies will find it difficult to grow their earnings enough to prove undervalued at earnings multiples in the high teens and low twenties. As a result we aren’t particularly excited about Marsh & McLennan, even considering the insider purchase, and if any peer is worth further research it is Booz Allen Hamilton.

Disclosure: I own no shares of any stocks mentioned in this article.