ARTHUR J. GALLAGHER & CO. (AJG): what the price requires
At today's price, ARTHUR J. GALLAGHER & CO. (AJG) is priced for today's economics sustained for ~5.2 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/AJG
Headline
| Field | Value |
|---|---|
| Ticker | AJG |
| Company | ARTHUR J. GALLAGHER & CO. |
| Current price | $260.54/sh |
| Composition | Commissions 58% / Fees 30% / Supplemental revenues 3% / Contingent revenues 2% / Interest income, premium finance revenues and other income 6% / Reimbursements 1% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | fee-financial |
| Top-of-range earnings growth must hold for | 5.2y |
| Price-to-earnings | 44.8x |
| Earnings yield | 2.2% |
Solve inputs: computed at a 8.7% cost of equity; growth searched up to the 20% fee-earnings ceiling.
How unusual the bet is: high
| Reference | Value |
|---|---|
| vs own history | -0.02σ |
| cohort percentile (of 49 peers) | 100 |
| sustained it ~5.2 years at this level | 25% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 3.84x | 3 | expensive |
| Earnings | 3.90x | 1 | expensive |
| Relative | 1.72x | 1 | expensive |
| Growth | 1.18x | 1 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.9%); the inversion above states its own rate.
Per-Model Detail (n=6)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | — | — | no | — |
| Bank Fair Value (P/TBV) | — | $46.24 | 5.63x | yes | TBVPS $92.47 × 0.50x (ROE (TTM) 6.8% / CoE 9.3%, g=4.4% (sustainable: 65% retention × ROE, 5% cap; not the terminal-growth assumption)) |
| Relative Valuation | Relative | $151.68 | 1.72x | yes | P/E 20.17x (blended: static sector reference 11x + trailing (TTM) 42x), scenarios: 16.3x / 20.2x / 24.0x (bear / base = reference held flat / bull), EV/EBITDA 22x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $67.77 | 3.84x | yes | BV/sh $92.47, ROE (TTM) 6.8%, ke 9.3% |
| Two-Stage Excess Return | Asset | $57.38 | 4.54x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $220.81 | 1.18x | yes | Rev $15.0B, growth 24% (input: historical growth; tapered), Terminal P/S: 3.6x / 4.5x / 5.3x (bear / base = today's held flat / bull, cap 12x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | $113.40 | 2.30x | yes | √(22.5 × EPS $6.18 × BVPS $92.47) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | — | — | no | — |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $5.18 | 50.30x | yes | EPS $6.18 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | — | — | no | — |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $66.81 | 3.90x | yes | EPS $6.18 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $13.5b |
| Net debt / NOPAT (after-tax) | 6.26x |
| Net debt / operating income (pre-tax) | 4.94x |
| Interest coverage | 4.3x |
| Share count CAGR (dilution) | 5.3% |
| Burning cash | no |
Bullet Takeaways
An insurance broker is worth the fee earnings it throws off, not its book value. At $214.15 (June 27, 2026) the stock trades near 37 times earnings, a 2.7 percent earnings yield, at the very top of its peer group.
The price embeds about 16 percent annual fee-earnings growth, a pace Gallagher has delivered but that leans heavily on acquisitions. The $14 billion AssuredPartners deal, the largest in brokerage history, closed in August 2025 and is driving the recent surge.
The roll-up runs on debt. Net borrowings stand near $13.5 billion against interest coverage around 4.3 times, so the compounding depends on integrating dozens of deals while servicing the financing.
Bull Case
What the traditional valuation models miss about Gallagher is that almost none of them are built for a business like this. Asset-based and book-value frames value a company by what it owns, but an insurance broker owns very little: it places coverage between clients and carriers and collects commissions and fees, with the filing noting that fees are "most often based on an expected level" of effort to place and service the contract rather than on premiums (FY2025 10-K, accession 0001628280-26-008662). There is no factory, no inventory, no underwriting balance sheet to mark. The value is the stream of recurring fee earnings and the firm's ability to grow it, which is why the static methods land far below the price and only the forward-growth frame reaches it. That gap is not a warning here; it is the model failing to price a capital-light compounder.
The compounding has been remarkably consistent. Adjusted EBITA rose 18 percent in the first quarter of 2026, the 24th consecutive quarter of double-digit growth, and brokerage underlying margins expanded 50 basis points. Combined brokerage and risk-management revenue grew 28 percent year over year to $3.2 billion, built from 5 percent organic growth plus 23 percent from M&A. Organic growth of 5 to 6 percent on its own would be a fine result for a services firm; layered on top of a relentless acquisition engine, it produces the durable mid-teens earnings growth the price assumes.
The acquisition machine is the second thing the static frames cannot capture. Gallagher completed 33 acquisitions in the year, roughly $3.6 billion of acquired annualized revenue, anchored by the $14 billion AssuredPartners deal, the largest in the history of the insurance brokerage industry, which closed in August 2025 and added about 10,900 employees. Management reports the integration "on plan without exception" with targeted run-rate synergies of $160 million by year-end and up to $300 million by early 2028. A firm that can repeatedly buy smaller brokers, fold them into a larger distribution platform, cross-sell, and lift margins is compounding in a way book value will never show, which is exactly why the durability premium exists.
Bear Case
The valuation methods disagree sharply, and the disagreement is the bear case in miniature. The asset, earnings-power and peer-multiple frames all read Gallagher as richly valued; only the forward-growth DCF reaches the price. That split means the entire investment case rests on one assumption, durable high growth, with no support from the methods that price the business as it stands. At about 37 times earnings, a 2.7 percent earnings yield, the price sits at the very top of the fee-financial peer group, and inverting it implies about 16 percent annual fee-earnings growth. Only about 35 percent of fee firms growing earnings that fast sustained it over five years. The market is paying a top-of-group multiple for a top-of-group growth assumption, and both have to hold.
The growth is heavily acquisition-driven, which is where the disagreement gets concrete. Of the 28 percent revenue jump, only 5 points were organic and 23 came from M&A, primarily AssuredPartners. Roll-up growth carries real risks: the filing warns that "the failure of acquisition targets to achieve anticipated revenue and earnings levels could result in goodwill impairment charges," and that through acquisitions the firm "may enter new lines of business" (FY2025 10-K, accession 0001628280-26-008662). A $14 billion deal integrating roughly 10,900 employees is a large bet, and if AssuredPartners or the next wave of deals underdelivers, the earnings growth the price requires slows just as the goodwill comes under scrutiny.
The leverage makes the bet less forgiving. Gallagher funded the acquisition spree with debt, carrying net borrowings near $13.5 billion against interest coverage around 4.3 times, and the share count has been rising to help fund deals, so per-share growth has to outrun both interest cost and dilution. Organic growth of 5 to 6 percent is solid but is itself tied to the insurance pricing cycle; a softening rate environment would slow the organic line just as the M&A pace gets harder to maintain at scale. A top-multiple, debt-funded roll-up where the static methods see a far lower value has many ways to disappoint and a thin cushion if growth decelerates from the mid-teens the price embeds.
Valuation
An insurance broker is worth the fee earnings it throws off, not its book value, so the price is read off price-to-earnings rather than price-to-book. Gallagher trades near 37 times earnings, a 2.7 percent earnings yield, which inverts to about 16 percent annual fee-earnings growth over a five-year stage at an 8.7 percent cost of equity. The asset, earnings-power and peer-multiple frames all read the stock as expensive; only the forward-growth DCF reaches the price, and the blended central value from the static methods sits far below it, reflecting how little book value a capital-light broker carries.
The price is therefore a pure growth-durability bet. The assumed 16 percent pace is within what Gallagher has delivered, given 24 consecutive quarters of double-digit adjusted EBITA growth, so the rate is credible; the stretch is twofold. First, the multiple sits at the very top of the fee-financial group, so the market already credits best-in-class persistence, and only about 35 percent of fast-growing fee firms sustained this pace over five years. Second, the growth is mostly acquired, only about 5 to 6 percent organic, so the price assumes the M&A engine keeps running at scale, funded by a balance sheet already carrying roughly $13.5 billion of net debt. The investment case rests on the roll-up continuing to compound: AssuredPartners and the broader acquisition pipeline must deliver their revenue and synergy targets while organic growth holds and the debt is serviced. If they do, the durable mid-teens earnings growth justifies the premium and the static methods stay irrelevant; if organic growth softens or a large deal disappoints, a top-of-group multiple on a leveraged roll-up has a long way to fall toward where the earnings-power frame sits.
Catalysts
AssuredPartners integration is the central catalyst. The $14 billion deal, the largest in brokerage industry history, closed in August 2025, and management reports the integration on plan with targeted run-rate synergies of $160 million by year-end and up to $300 million by early 2028. Hitting those synergy milestones, and avoiding any goodwill impairment, is the key proof that the largest bet in the company's history is working.
Organic growth and the acquisition pipeline are the second catalyst. Gallagher affirmed full-year 2026 organic growth of 6 percent combined and 5.5 percent in brokerage, and completed 33 acquisitions representing about $3.6 billion in acquired annualized revenue. The quarterly organic growth rate and the pace and pricing of new deals are the items to track, since the price assumes both the organic line holds and the M&A engine keeps running.
The insurance pricing cycle and the balance sheet are the swing factors. Organic commission and fee growth depends on insurance rate trends, so a softening pricing environment would pressure the organic line. With net debt near $13.5 billion funding the roll-up, the pace of deleveraging and interest cost are worth watching each quarter. Quarterly results, particularly adjusted EBITA growth and brokerage margin, remain the main proof point on whether the durable double-digit compounding is holding.
Peer Cohorts (Per Segment, With Filing Citations)
Brokerage (reported)
- BRO (BROWN & BROWN, INC.)
- (no filing in the citation store)
- RYAN (RYAN SPECIALTY HOLDINGS, INC.)
- (no filing in the citation store)
- MRSH (Marsh & McLennan Companies, Inc.)
- (no filing in the citation store)
- AON (Aon plc)
- (no filing in the citation store)
- WTW (WILLIS TOWERS WATSON PLC)
- (no filing in the citation store)
- GSHD (GOOSEHEAD INSURANCE, INC.)
- (no filing in the citation store)
- BWIN (The Baldwin Insurance Group, Inc.)
- (no filing in the citation store)
Risk Management (reported)
- CRVL (CorVel Corporation)
- (no filing in the citation store)
- MRSH (Marsh & McLennan Companies, Inc.)
- (no filing in the citation store)
- AON (Aon plc)
- (no filing in the citation store)
- WTW (WILLIS TOWERS WATSON PLC)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.