Free Cash Flow In Focus For Willis Towers Watson As Investor Day Approaches

Barclays’ Jay Gelb expects Willis Towers Watson PLC (NASDAQ: WLTW) to maintain an upbeat tone regarding the prospects of the combined business at the company’s first analyst day as a combined entity on September 29.

Gelb maintains an Overweight rating on the company with a price target of $148.

Financial Targets Achievable

The analyst expects management to reaffirm its financial targets for 2018, including adjusted cash EPS of about $10 and adjusted EBITDA margin of 25 percent.

Willis Towers Watson currently expects organic revenue growth of 2–3 percent for FY16, which Gelb believes is achievable.

However, the analyst expects the soft commercial P&C pricing and slow economic recovery in Asia and Europe to act as headwinds.

Related Link: Bull And Bear Case Scenarios For Willis Towers Watson

Free Cash Flow

“Our sense is WLTW could generate close to $1 billion of adjusted annual free cash flow excluding restructuring and integration costs (~$400 million annually) as well as the recently announced $120 million Stanford litigation settlement,” Gelb mentioned.

The analyst expects integration and restructuring costs to start declining by the end of 2017 and views the combined company as a “strategically favorable combination that shifted Willis from being a pure-play global insurance broker by adding core capabilities in consulting, employee benefits, and private health insurance exchange.”

Gelb expects 2016 to be a transition year, although Willis Towers Watson has achieved robust enrollment momentum for its healthcare exchange, while there are early signs of cross-selling success.

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