Bull And Bear Case Scenarios For Willis Towers Watson Ahead Of Analyst Day

Keefe, Bruyette & Woods reiterated its Outperform rating and $128 target price on Willis Towers Watson PLC (NASDAQ: WLTW) while presenting its bull and bear case scenarios for the stock ahead of its analyst day on September 29.

"We see risk/reward skewed more to the upside with the Analyst day as a positive catalyst, although we acknowledge volatility will likely remain elevated in the near term," analyst Quentin McMillan wrote in a note.

The analyst's bull case scenario puts WLTW's value at $175. Conversely, the bear thesis estimates WLTW's value at $108.

The bull target of $175 is based on 15x 2018 estimated EPS of $11.67, while bear target of $108 is based on 13x 2018 estimated EPS of $8.28.

Under the bull case, McMillan assumes the following:

1) "a meaningful portion of the $325m OIP savings falls to bottom line ($160m);

2) "strong FCF generation drives repurchases of 3.5%/4.7% in 2017/2018";

3) "merger cost synergies of $125m and tax synergies of $75m are achieved";

4) "$275m of merger revenue synergies (below midpoint of targeted $375-675m range exiting 2018) achieved on a slightly lowered 2.5% organic base, driving total +4.0/+4.5% organic growth in 2017/2018";

5) "stronger earnings drive 3.5%/4.7% 2017/2018 repurchases."

On the other hand, the bear case assumes:

1) "0% organic growth in 2017-2018";

2) "no revenue synergies and no further M&A growth";

3) "merger expense synergies of $100m and $75m tax synergies are achieved";

4) "salary & benefits are held flat given organic headwinds and adj. EBITDA margin roughly flat with 2015 levels at 23.5%";

5) "weaker earnings drive lower repurchases of 2.3%/2.6% of outstanding in 2017-2018."

"We expect the Analyst day should be a positive catalyst for shares as management provides additional clarity, setting current and future expectations for the stock," McMillan added.