MARSH & MCLENNAN COMPANIES, INC. (MRSH) stock intrinsic value fair value estimate & owner earnings analysis

Marsh (until January 2026 branded Marsh McLennan) is the world's largest insurance broker. Its Risk and Insurance Services segment (Marsh Risk and the reinsurance broker Guy Carpenter) places insurance and reinsurance for clients and is paid commissions and fees, mostly on renewals that recur every year. Its Consulting segment holds Mercer (benefits, pensions, investment and HR advice) and Oliver Wyman (management consulting). Revenue was $27.0 billion in 2025. Owner earnings. We start from operating cash flow and remove year-to-year working-capital swings, stock-based pay (a real cost to shareholders) and the capital spending needed to keep the business running. Pension contributions above the pension credit and office lease payments are counted as costs. On that basis owner earnings grew from $3.32 per share in 2016 to $9.27 in 2025, about 12% a year, with only small dips in 2017 and 2019. Amortization of acquired client relationships ($549 million in 2025, up sharply after the McGriff purchase) is added back because it is a sunk purchase cost. Those relationships wear away as clients leave, so we only credit organic growth that is already net of lost clients; we do not treat the acquired book as permanent growth. Starting level. Marsh carries meaningful debt, so we value the business before its lenders and then subtract what it owes. Adding back cash interest ($885 million in 2025 and $591 million in 2024) gives cash flow before lenders of $5.47 billion in 2025 and $4.66 billion in 2024. McGriff Insurance Services was bought in November 2024 for $7.75 billion, funded largely by $7.25 billion of new notes, so 2025 is the only full year that includes it. We take the midpoint of 2024 and 2025, $5.06 billion (about $10.50 per share on 482 million diluted shares), as the starting level. It sits below 2025 because the 2025 annual report says underlying growth was partly offset by declining insurance and reinsurance premium rates, and that softer pricing is still in place. Owner earnings rose 13% in 2025, and our base case grows about 4% in the first year from the lower starting level, which still leaves 2026 below the 2025 actual. Recent results back up the level. In the first half of 2026 revenue rose 7% to $15.0 billion. Operating income fell to $3.65 billion from $3.83 billion only because of a $425 million first-quarter litigation charge tied to the Greensill collapse. Without that charge it rose about 6%. We treat the $425 million as money the company owes. Debt. At June 30, 2026 borrowings were $20.6 billion, including $1.0 billion of commercial paper. Cash was $1.7 billion, of which we treat about $1.0 billion as surplus. Scheduled repayments are $1.3 billion in each of 2026 and 2027 and $2.4 billion in 2030. Most of the debt is fixed-rate at roughly 4.5% to 5.5%, such as the November 2024 notes at 4.55% to 5.40% running out to 2055. Because that cost stays below our 6% rate for years, we credit about $1.5 billion. Net of that credit and the litigation payment, debt comes to about $18.5 billion. We also subtract the outside owners' share of partly owned units, which is about 1.75% of business value. Client money held in trust is excluded from both sides. Interest of about $1 billion a year is covered roughly five times by cash flow even in the bear case. Base case ($252 per share). Cash flow grows 4% a year for ten years. That is organic growth only, in line with Marsh Risk's 4% underlying growth in 2025 and below the roughly 5% average of the past decade. Acquisitions are not credited because they cost cash. The Thrive program's targeted $400 million of annual savings is also left out because it is a management target, not yet delivered. After year ten, growth slows to 3% for a decade and 2% for another, then stops growing. This rests on a structural feature: commissions and fees scale with insured values, payrolls and benefit costs, which rise with the economy. The franchise dates back to 1871, and its clients renew year after year. On this case the business is worth about $143 billion. Subtracting $18.5 billion of net debt and about $2.5 billion for outside owners leaves about $122 billion, or $252 per share. Bear case ($165 per share). A drawn-out soft insurance market like 2009-2010, with premium rates falling, combines with a downturn in consulting work at Oliver Wyman and Mercer. Cash flow drops 4% in 2026, is flat for two years and then grows 2.5% a year to year ten and 2% to year twenty before flattening. A further $1 billion is paid out in 2027 to settle the remaining Greensill claims, including Greensill Bank's Australian proceedings, which are still open. The business is worth about $100 billion. After subtracting $18.5 billion of net debt and $1.7 billion for outside owners, about $80 billion is left, or $165 per share. Bull case ($336 per share). Organic growth runs at 6% for five years, between the past decade's roughly 5% average and the 7-10% achieved in the 2021-2024 hard market, then 5% to year ten and 3.5% to year thirty. The Thrive program, already under way with $150 million spent in 2025, delivers its $400 million of savings (about $300 million after tax) by 2028. The business is worth about $184 billion. After subtracting $18.5 billion of net debt and $3.2 billion for outside owners, about $162 billion is left, or $336 per share. What has changed. Our previous estimates were $80, $147 and $226 per share. They are higher now mainly because we value every business at a single 6% rate instead of the roughly 9.5% used before. At the same time we cut the growth assumptions (base 4% versus 6.5% before) and added the 2026 litigation charge and an extra legal cost in the bear case. What would make this estimate wrong: premium rates falling for several years rather than stabilizing, a large loss of producers or clients, or Greensill-related costs well beyond the roughly $1.4 billion we allow for in the bear case. We could not reconcile first-half 2026 owner earnings precisely because the full quarterly cash-flow detail was not available. The operating figures for the half are consistent with the starting level.