Brown & Brown, Inc. (BRO)

Total return at 5 years: 11.9%/year = 10.7% appreciation + 1.1% dividend. The target price ($106) is ex-dividend; the $4 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $149 · Multiples $89) exceeds the market price ($64).

Today — fairly valued: at $64 trades ~28.4% below its value discounted to today (~$89); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($106) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$56.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($64) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-9.1%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.2 bn of owner earnings in year 5 (vs ~$2.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Brown & Brown is valued as a sum of the parts: Retail and Specialty Distribution, each with its share of consolidated after-tax operating income (45% and 55%, respectively) multiplied by its own multiple within the [16×,22×] band of the insurance brokerage archetype. The starting point (TTM to June 2026) already incorporates twelve full months of the Accession acquisition, closed in June 2025, so the TTM revenue jump (+34.2% year over year) is not extrapolated: the growth path from year 1 onward starts from the average of the organic trajectory (which went from +2.8% in 2025 to −0.7% in the second quarter of 2026), not from the reported peak or from guidance (the company gave no numerical guidance in the July 2026 release). The sign convention follows the level of the metric: since after-tax operating income is pre-interest, the valuation is at the enterprise level and the balance-sheet cash (US$928 million) and debt (US$7,759 million) enter the bridge, so the Accession funding is subtracted only once; the cash surplus is reinvested in the very pace of bolt-on acquisitions already incorporated into the growth path (it is not accumulated separately, so as not to double-count that growth). The DCF runs at the same level: an unlevered flow (owner earnings) that subtracts net debt in its own bridge.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $106 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $64, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $106 in 5 years plus $4 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $89. Against the current market price ($64), the margin of safety is 28.4% (trades below the maximum → there is margin) and the total return at that price would be 11.9% annually.

• Multiple today vs. band. Today's static bridge implies a per-share value close to the market price.
• Five-year margin of safety. It trades at a real discount to value, though short of the required margin of safety.
• Sensitivity to the exit multiple. The verdict materially depends on whether the terminal multiple lands near the floor or the ceiling of the band.
• Dividend. Modest dividend yield (~0.9%) but growing (~14% annual historically).

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (131%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. ROIC ~7.8%, below the 10% bar, explained by the accumulated goodwill of a serial acquirer.
• Cash generation. OCF of US$1,520 million TTM on marginal capex (US$74 million), consistent with an asset-light business.
• Reinvestment runway. Proven track record of more than 40 bolt-on acquisitions per year, currently constrained by the Accession debt.
• Margin predictability. Net margin has compressed for two straight years from integration costs and interest; it has not yet stabilized.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The relevant driver for an insurance broker is Organic Revenue Growth (new and renewed business volume, net of price) because it isolates the actual performance of the commission business from the effect of acquisitions. The 2025 segment reorganization (from three to two) limits historical comparability of segment data to just two years.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Reported vs. organic growth. TTM +34.2% reported versus organic growth of just +2.8% in 2025 and negative in 2026.
• M&A engine. 43 acquisitions in 2025, including the transformational Accession deal.
• Insurance pricing cycle. The pricing market is softening, a headwind outside the company's control.
• Segment mix. Specialty Distribution grows at higher margins than Retail, improving the mix at the margin.

• Revenue recurrence. Policies renew annually; the business does not depend on one-off sales.
• Client diversification. No client exceeds 7.2% of commissions in any segment.
• Organic growth. Turned negative (−0.7%) in the second quarter of 2026.
• Operating leverage. Modest: margin depends more on business mix than on pure scale.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 2.8x
• !Interest coverage (EBIT / interest)4.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 131% of ROIC
• ✕Value creation (ROIC − 10% bar)-2pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.1x — no over-investment
• –Float / working capitalNeutral WC
• !Dilution (SBC % of revenue + shares)SBC 1.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt ~US$7,800 million after funding Accession, versus cash of US$918 million.
• Interest coverage. TTM EBIT (~US$1,949 million) covers TTM interest expense (~US$400 million) with reasonable headroom.
• Liquidity. Cash and operating cash flow cover current debt service without visible strain.
• Goodwill to assets. Goodwill (US$15,146 million) represents more than half of total assets, an impairment risk if integration fails.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Founding family holds ~13.1% of capital among directors and executives.
• Employee ownership. Roughly 20% of the company held by employees via stock purchase plans.
• Recent capital allocation. The Accession purchase was funded with debt and a dilutive share issuance, not with retained cash.
• Transparency about organic weakness. The release acknowledges negative organic growth without dressing it up, though without forward numerical guidance.

• The negative organic growth of the first half of 2026 spooked the market right after the company's largest acquisition in its history, creating the perception of an integration that is not going as expected.
• The stock's decline coincides with the rise in interest expense (from US$96 million to US$199 million in the half) after funding Accession with debt, which depresses GAAP earnings per share even though the underlying commission business keeps growing.
• The July 2026 earnings release did not include forward numerical guidance, leaving the market without an explicit management anchor for when organic growth normalizes.

There is no unambiguous missing-buyers-type discount source: the business trades close to its multiples-based value today (Step 4), and the margin of safety depends on organic growth recovering toward the historical range.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +1%/year (+4% total): the margin of safety protects the downside. The bull (+19%/year, +136% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Accession integration. Pending litigation, an IRS investigation, and higher financial leverage.
• Organic growth. Negative in the most recent quarter, with no company guidance on when it recovers.
• Geographic concentration. ~16% of revenue in Florida, exposed to hurricanes and other climate events.
• Key talent. The business depends on brokers' personal relationships; the loss of executives is a recurring risk acknowledged by the company itself.
• Cybersecurity. Incidents already disclosed (without material impact) and new attack vectors associated with the use of generative artificial intelligence.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 8% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 3.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 7% (EBIT/EV) + ROIC 8% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -9% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -1%/yr, bull-scenario ceiling +18%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -9%, within what we project (6%) — the story squares with the numbers.