QS Research · Michael Burry's Scion Capital analyst template · 2006
Arthur J. Gallagher & Co. (AJG)
As of 2026-11-11 · 12/15 boxes filled from SEC filings and market data
Report price $282.65 (close 2026-11-10)
Conclusion: SHORT
Conviction medium · base case -54% · downside -56% · upside +20%
Gallagher is a well-run broker — 5% organic growth in Q3 2026, a 26th straight quarter of double-digit adjusted EBITDAC growth and 202 bps of brokerage margin expansion — but it is priced as the best business in a peer set where AON earns $3.93B of net income on $17.68B of revenue against AJG's $1.70B on $16.36B, and both carry a ~$72B market cap (S1, S29, S31). At 42.7x TTM earnings, 4.43x sales and 3.01x book for a 7.1% return on common equity (N24, N23, N25, N22), the code's independent anchor of the 19.8x peer median P/E values the equity at $131.06, -54% (N37); I use that single base for all three cases. Upside is arithmetic only — net income +20% to $2.04B held at today's 42.7x is $87.1B, +20% — while downside is earnings -40% to about $1.02B at a compressed ~31x (halfway from 42.7x to 19.8x, and 27% below today's, i.e. $1.70B x 0.60 x 31.25 = $31.9B), -56% from $72.47B. One sentence against myself: GAAP earnings carry $1.17B of TTM intangible amortization (S28) and nine-month adjusted net earnings were $2,680M against $1,553M reported (S102), so 42.7x overstates the true cash multiple — which is why the short is medium conviction, not high, even though base, downside and upside all point down.
Key numbers
- Share price: $282.65
- Market cap: $72.47B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $16.36B
- P/E (TTM): 42.7x
- Price / book: 3.01x
- Earnings-quality flags (TTM): none flagged
- Revenue growth (latest fiscal year): +20.7%
The 15 boxes
- ✓ 1. Long-form business notes
AJG is a commission- and fee-based insurance/reinsurance broker, consultant and third-party P/C claims administrator that does not assume underwriting risk on a net basis except de minimis captive/pool capital. FY2025 revenue was $13.94B, with brokerage about 87% and risk management about 13%; TTM to Sep 2026 revenue was $16.36B and net income $1.70B. Between FY2020 and FY2025 the segment mix shifted sharply away from corporate clean-energy revenues, brokerage rose from 74% to 87% of revenues, and acquisitions expanded the office footprint.
- ✓ 2. Competitive advantage
AJG has scale and deal flow in a business its own 10-K calls 'highly competitive': about 780 acquisitions from 2002 through 2025, ~72,000 employees at 2025-12-31, and revenue that went from $7.00B in FY2020 to $13.94B in FY2025 and $16.36B TTM to 2026-09-30 (S25, S28). But the moat is not clearly wide versus peers — the 2026-02-17 risk-factor diff says two competitors in global brokerage and risk management have larger revenues than AJG, and management's own advantage claim is framed against 'smaller organizations with which we compete' (S25, S27). The record is consistently profitable (net income $818.8M FY2020 rising to $1.49B FY2025, $1.70B TTM), helped by client concentration so low (largest client ~1%, top ten ~3% in 2025) that no account drives results — and hurt on a GAAP basis by intangible amortization that grew to $916.0M in FY2025 from $417.3M in FY2020 (S25, S28). Its main cost is people: compensation was 55% of brokerage and 61% of risk management segment revenues in 2025 (S25).
- ✓ 3. 10-Q takeaways
Q3 2026 (quarter ended 9/30/2026) was a strong quarter: total company adjusted diluted EPS $3.00 vs $2.31, adjusted EBITDAC $1,253M vs $1,013M (+25%), combined brokerage plus risk management revenue +18% with organic growth of 5% (brokerage organic +5%, risk management organic +10%). Brokerage adjusted EBITDAC margin expanded to 35.3% from 33.3% in the quarter, though the nine-month margin is down 135 bps to 36.5% versus a prior-year period that carried $363M of AssuredPartners-financing interest income. GAAP results are heavily shaped by non-operating and deal-related items: brokerage Q3 2026 reported net earnings of $515M include $212M after-tax of intangible amortization and a $13M pretax divestiture gain, which is why reported EPS of $1.55 sits far below adjusted EPS of $3.00. The 10-Q reports no material change to risk factors, and neither the 10-Q nor the 10/29/2026 earnings release gives numeric revenue or EPS guidance.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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