Brown & Brown (BRO)

Insurance brokerage firm Brown & Brown (NYSE:BRO) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 35.4% year on year to $1.61 billion largely due to M&A and profit-sharing contingent commissions. Its non-GAAP profit of $1.05 per share was 12.9% above analysts’ consensus estimates.

Company Overview

With roots dating back to 1939 and operations spanning 44 U.S. states and 14 countries, Brown & Brown (NYSE:BRO) is an insurance brokerage and risk management firm that markets and sells insurance products across property, casualty, and employee benefits sectors.

The insurance brokerage industry, while influenced by insurance pricing cycles, benefits from durable secular tailwinds as rising risk complexity (climate, data privacy), regulatory scrutiny, and insurance pricing inflation. These increase demand for professional risk-management advice. Brokers operate models that rely on commissions and fees tied to premium volumes and growing contributions from recurring advisory, benefits, and compliance services. Scale is a key advantage, enabling better carrier access, stronger data and benchmarking, and efficient deployment of technology and compliance investments, which in turn supports ongoing industry consolidation. The headwinds are labor intensity and wage inflation for producers, regulatory complexity (this cuts both ways, as you can see), and execution risk when integrating new digital tools into legacy workflows.

Brown & Brown competes with other major insurance brokers including Marsh & McLennan Companies (NYSE:MMC), Aon plc (NYSE:AON), Arthur J. Gallagher & Co. (NYSE:AJG), and Willis Towers Watson (NASDAQ:WTW), as well as numerous regional and local insurance agencies.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $5.48 billion in revenue over the past 12 months, Brown & Brown is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions.

As you can see below, Brown & Brown’s sales grew at an incredible 16.5% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Brown & Brown’s demand was higher than many business services companies.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Brown & Brown’s annualized revenue growth of 15.1% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Brown & Brown’s organic revenue averaged 7.9% year-on-year growth. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Brown & Brown reported year-on-year revenue growth of 35.4% largely due to M&A and profit-sharing contingent commissions, and its $1.61 billion of revenue exceeded Wall Street’s estimates by 3.9%.

Looking ahead, sell-side analysts expect revenue to grow 31.6% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and suggests its newer products and services will fuel better top-line performance.

Brown & Brown has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average adjusted operating margin of 25.5%.

Looking at the trend in its profitability, Brown & Brown’s adjusted operating margin decreased by 1.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Brown & Brown generated an adjusted operating margin profit margin of 19.4%, down 7.4 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Brown & Brown’s EPS grew at an astounding 20.7% compounded annual growth rate over the last five years, higher than its 16.5% annualized revenue growth. However, we take this with a grain of salt because its adjusted operating margin didn’t improve and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Brown & Brown, its two-year annual EPS growth of 24.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Brown & Brown reported adjusted EPS of $1.05, up from $0.91 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Brown & Brown’s full-year EPS of $4.23 to grow 7.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Brown & Brown has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 23.6% over the last five years.

Taking a step back, we can see that Brown & Brown’s margin dropped by 1.6 percentage points during that time. We’re willing to live with its performance for now but hope its cash conversion can rise soon. Continued declines could signal it is in the middle of an investment cycle.

Brown & Brown’s free cash flow clocked in at $452 million in Q3, equivalent to a 28.1% margin. The company’s cash profitability regressed as it was 7 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Brown & Brown’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 12.3%, slightly better than typical business services business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Brown & Brown’s ROIC has stayed the same over the last few years. Rising returns would be ideal, but this is still a noteworthy feat since they're already high.

Brown & Brown reported $3.46 billion of cash and $8.11 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.86 billion of EBITDA over the last 12 months, we view Brown & Brown’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $109 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Brown & Brown beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its organic revenue was in line. Zooming out, we think this quarter featured some important positives. The stock remained flat at $79.60 immediately after reporting.

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Brown & Brown, you should also grasp the company’s longer-term business quality and valuation.

There is a lot to like about Brown & Brown. To begin with, its revenue growth was exceptional over the last five years, and its growth over the next 12 months is expected to accelerate. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, and its impressive operating margins show it has a highly efficient business model.

Brown & Brown’s P/E ratio based on the next 12 months is 17.7x. Analyzing the business services landscape today, Brown & Brown’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $92.86 on the company (compared to the current share price of $79.60), implying they see 16.7% upside in buying Brown & Brown in the short term.