Has The Recent Pullback In Willis Towers Watson (WTW) Opened A Valuation Opportunity?

• If you are wondering whether Willis Towers Watson is attractively priced today, you are not alone. The stock has drawn attention from investors trying to work out what a fair value looks like.
• The share price closed at US$287.74 recently, with returns of a 12.8% decline over 7 days, 12.3% decline over 30 days, 11.8% decline year to date, 9.2% decline over 1 year, 24.1% total return over 3 years and 36.6% total return over 5 years.
• Recent coverage around the stock has focused on its position in the insurance and risk advisory space and how investors are weighing its long term role in that sector. This has shaped sentiment around whether the recent pullback is a reset in expectations or simply noise in a longer multi year story.
• Right now, Willis Towers Watson scores 2 out of 6 on our valuation checks, meaning it screens as undervalued on 2 of them. You can see the breakdown in our valuation score. Next we will walk through the main valuation methods investors often use, then finish with a more rounded way to think about what the stock might be worth.

Willis Towers Watson scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Willis Towers Watson Excess Returns Analysis

The Excess Returns model looks at how much profit Willis Towers Watson is expected to generate above the return that shareholders require, then capitalises those extra profits into an intrinsic value per share.

Here, the starting point is the company’s Book Value of $83.89 per share and an Average Return on Equity of 11.30%. That translates into a Stable EPS estimate of $10.62 per share, based on the median return on equity from the past 5 years. Shareholders’ required return is captured by the Cost of Equity at $6.97 per share, so the model estimates an Excess Return of $3.65 per share.

The analysis then assumes this profitability is sustained on a Stable Book Value of $94.00 per share, which comes from weighted future book value estimates from two analysts. Discounting those future excess returns back to today gives an intrinsic value of about $185.06 per share.

Against the recent share price of $287.74, the Excess Returns valuation implies the stock is around 55.5% overvalued on this method.

Result: OVERVALUED

Our Excess Returns analysis suggests Willis Towers Watson may be overvalued by 55.5%. Discover 53 high quality undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Willis Towers Watson.

Approach 2: Willis Towers Watson Price vs Earnings

For profitable companies like Willis Towers Watson, the P/E ratio is a straightforward way to connect what you pay for each share with the earnings the business is currently generating. It gives you a quick sense of how much the market is paying for each dollar of profit.

What counts as a reasonable P/E depends on how investors view growth prospects and risk. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth expectations or higher risk usually point to a lower “normal” multiple.

Willis Towers Watson currently trades on a P/E of 17.05x. That sits above the Insurance industry average of 12.33x, but below the peer group average of 24.23x. Simply Wall St’s Fair Ratio for Willis Towers Watson is 13.62x. This Fair Ratio is a proprietary estimate of what P/E might make sense given factors such as the company’s earnings growth profile, industry, profit margins, market cap and key risks.

The Fair Ratio can be more informative than a simple comparison with peers or the broad industry, because it is tailored to the company’s specific characteristics rather than relying on broad group averages.

Comparing the current P/E of 17.05x with the Fair Ratio of 13.62x suggests the shares screen as overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Willis Towers Watson Narrative

Earlier we mentioned that there is an even better way to understand valuation, so on Simply Wall St’s Community page you can build or follow a Narrative for Willis Towers Watson, which is basically your story for the company that ties together your assumptions about future revenue, earnings and margins, links those assumptions into a financial forecast and Fair Value, then compares that Fair Value to the current share price, updates automatically when new news or earnings arrive, and can differ widely between investors. For example, one user might align with a higher Fair Value near US$408 and another might be closer to the lower end near US$305, with each acting on their own view of whether the current price offers enough upside or not.

Do you think there's more to the story for Willis Towers Watson? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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