Brown & Brown: down 35%, but the price already equals the base case

Brown & Brown has fallen from $96.13 to $62.88 in a year, and the reason is on the screen: it spent $7.9 billion in cash on acquisitions in 2025, mainly Accession, and since then its organic revenue has not grown. Revenue is up 30% only because it bought the growth. The shares look cheap against their past, but at the current price the market is paying about what I think the business is worth.

At the October 9, 2026 close of $62.88, the shares trade 11.1% below my triangulated Base value of $70.70. The Bear value is $45.52 and the Bull value is $96.06. That is inside the band where I call a stock fairly valued. The required margin of safety (MOS), the discount to fair value I need before buying, is 50%, so the maximum buy price is $35.35, 44% below the price.

Route: SF-01 standard value. SF-03 (insurance) does not apply: Brown & Brown earns commissions and fees and does not underwrite risk. Economic classification: Quality Growth, 5/12 on the sector scorecard. That is exactly the 5-point line between Standard and Quality Growth, and a 4 would have made it Standard. Engine: GROWTH_ADJUSTED_MULTIPLE, with an explicit multiple build. Primary method: normalized owner free cash flow times a multiple. Secondary method: a six-year DCF at 10%. Values are present fair-value estimates, not 12-month price targets. Owner free cash flow here is cash after interest, cash taxes, capex, integration cost and stock pay.

What Brown & Brown is

Brown & Brown is an insurance broker. It places property, casualty and employee-benefit coverage for clients and earns commissions and fees, with no underwriting risk on its own balance sheet. It has two main parts, a retail brokerage and a specialty distribution business, and it has historically grown by buying small brokers.

• In 2025 it spent $7.9 billion of cash on acquisitions, chiefly Accession (RSC Topco), funded with debt and new equity. Shares outstanding rose from about 286 million to 336 million and debt from $4.1 billion to $7.9 billion.
• Acquisitions contributed $393 million of second-quarter revenue and $829 million for the half. Revenue is not growing without them.
• The business model is attractive: commissions renew every year, capex is about 1% of revenue, and EBITDAC margins are in the mid-30s.

The latest quarter

Second-quarter organic revenue fell 0.7%, the second straight quarter of flat to falling organic growth. Retail grew 1.5%. Specialty distribution fell 3.5% on lower catastrophe property rates and about $10 million of new-business timing. The margin fell a full point and interest expense doubled to $100 million. For the half, organic revenue fell 0.3% (rose 1.6% with contingent commissions) and adjusted EBITDAC rose 32.2% to $1.33 billion at a 37.2% margin.

Free cash flow grew from $764 million in 2021 to $1,382 million in 2025, but the last year includes only part of a year of Accession, and the company paid $7.9 billion in cash for acquisitions that year. Stock-based compensation of about $90 million is a real cost, and I deduct it.

Owner free cash flow

Trailing free cash flow is $1,446 million, and after $90 million of stock pay it is $1,356 million. My Base for 2026E is $1.42 billion, because 2026 has a full year of Accession, offset by $0.40 billion of interest (first-half interest was $199 million) and about $0.20 billion of integration, earn-out and other cash. The path below shows how it develops.

Base assumes organic growth recovers from zero to 4% to 4.5% as property rates stop falling and Accession cross-selling works, margin edges up to 36.5%, and no further acquisitions. I do not model more M&A. Any future deals are valued at what they cost, so they add nothing to the value here.

Debt, shares and what is not on the balance sheet

Net debt is 2.8 times 2026E adjusted EBITDAC. Fiduciary cash of $2.6 billion belongs to clients and is matched by client liabilities, so I leave it out. Operating leases are left out because rent is already deducted from EBITDAC. The company does not state in the release what it owes in acquisition earn-outs, and I mark that UNAVAILABLE: each $0.5 billion would reduce the value by about $1.48 a unit. The share count has two figures, 330 million at June 30 and a cover count of 334.6 million, and I use the higher one. First-half buybacks were $500 million, the dividend is $0.66 a share (1.0% yield, 21% payout), and shares outstanding fell from 336 million to 330 million.

Primary valuation: owner free cash flow times a multiple

Brown & Brown is a Quality Growth company under the framework by one point, so the multiple is built from a base and explicit premiums. The base for an average stable company is 11 times. I add a growth premium that matches the per-share growth in my Base, a return-on-capital premium (ROIC is about 9.5%, only modestly above the cost of capital because goodwill from past deals is in the denominator), and a repeat-economics premium for renewing commissions. I subtract a dilution penalty for the 17% increase in shares in 2025 and a risk discount for the organic stall and integration.

The Base multiple of 13.0 times is 18% above the 11-times sector base, below the 75% line that would require a DCF cross-check, though I run one as the secondary method anyway. At 13 times, the stock would be priced well below where Brown & Brown has traded in past years (ESTIMATED from public data, not verified here), because history paid for 8% to 10% organic growth that I do not assume.

The primary Base value is $63.43. The market price of $62.88 is within 1% of this number.

Sensitivity: value per unit

Secondary valuation: six-year DCF

The secondary Base value is $77.99. Nearly three quarters of the DCF is terminal value, and it uses the same cash flow path as the primary method, so it is not fully independent. It differs by what it assumes about the long run: a 3.5% growth rate forever against a 13-times multiple.

History and growth diagnostics

Valuation history. The enterprise value is 11.5 times my 2026E adjusted EBITDAC, and the share price is 14.8 times trailing free cash flow, according to stockanalysis.com. Brown & Brown has traded much higher in past years (ESTIMATED from public data, not verified here), so today's price is low against its own history, but that history belonged to a company growing organically at high single digits.

PEG (SM-19, diagnostic only). Reported diluted EPS for the first half was $1.90 against $1.93 a year ago, and adjusted EPS grew 6.0%. Growth is acquisition-driven and the share count changed by 17%, so PEG would be misleading. Flag: ACQUISITION_AFFECTED, with PEG_NOT_MEANINGFUL.

Free cash flow growth quality (SM-20, diagnostic only). Free cash flow rose from $764 million in 2021 to $1,382 million in 2025 and was $1,446 million for the twelve months to June 2026, but 2025 includes $7.9 billion of acquisitions and a 17% larger share count. Per share, free cash flow grew about 11.7% a year over four years (CALCULATED from the 2025 net income and EPS share count). Forward, my Base owner cash flow compounds at 6.8% a year from 2026E to 2031E, from $1.42 billion to $1.98 billion. Forward owner cash flow yield on market value is 6.7% for 2026E and 7.3% for 2027E. Flags: M_AND_A_DISTORTION, ACCOUNTING_CASHFLOW_MISMATCH (operating cash flow includes changes tied to fiduciary balances I cannot separate). Forecast reliability: MEDIUM. Stress test: 2028E owner cash flow 20% lower gives a primary value of $51.79, and 40% lower gives $40.16.

Valuation triangulation

The two methods differ by 20.6% of their midpoint. That is just over the 20% line, so the framework flags a warning, not a divergence penalty (which starts at 30%). I weight them 50/50 because they use one cash flow path and the multiple and the terminal growth are both judgments. The bias table at the end shows 70/30 and 30/70.

What is the market already pricing in?

Reverse valuation: at $62.88, the market value of $21.3 billion implies a multiple of 12.9 times on my Base 2028E owner cash flow, against my 13.0 times. Holding my multiple, the price needs 2028E cash flow of about $1.69 billion, against $1.70 billion in Base. The market is already paying for a recovery to 4% organic growth and a stable margin, and that is why the price is not a bargain after a 35% drop.

Bear, base and bull scenarios

Bear: property rates keep falling, organic revenue shrinks again in 2027, the margin slips to 33.5%, and the market pays 9 times. Base: organic growth recovers to about 4%, Accession integration finishes by 2028, and the margin edges up. Bull: cross-selling and a stronger pricing cycle lift organic growth to 6% to 7.5%, margins reach 38% and the market pays 17 times. Bear and Bull use the same discount rate and debt as Base. The price of $62.88 is 38% above Bear, and Bull is 53% above the price, a fair spread but not a wide one.

How the buy price is set

Confidence is C, which starts the margin of safety at 40%. I add 5 points for leverage, 5 for the character change from the Accession deal and 5 for terminal value dependence, and subtract 5 for the renewing commission model. The result is 50% and the maximum buy price is $70.70 x 50% = $35.35. Under the framework a negative character change also lowers the verdict one step, which does not matter here because the price is inside the fair-value band.

Even the lightest margin of safety in the Confidence C range gives a buy price of $45.96, 27% below the price. Brown & Brown would need a price between about $35 and $46, depending on the margin of safety, or evidence that organic growth has returned, before the framework says buy.

Dividend and capital return

The dividend is $0.66 a share, a yield of 1.0% and a payout of about 21% of earnings, covered several times by free cash flow. The company repurchased $500 million of stock in the first half of 2026, which, with other changes, left shares outstanding about 6 million lower, and $628 million over the last twelve months. Buying back stock while net debt is still 2.8 times EBITDAC competes with debt paydown, but it is small against $1.4 billion of annual free cash flow.

Reasons to own BRO

• Recurring, asset-light cash flow. Capex is about 1% of revenue, and free cash flow has exceeded net income in every year shown.
• Free cash flow yield. Owner cash flow yield on market value is 6.7% for 2026E and 7.3% for 2027E in my Base.
• Organic growth can recover. Retail organic growth was still 1.5% in the quarter, and the pressure in specialty distribution is mainly a cycle in catastrophe property rates.
• Margin discipline. The adjusted EBITDAC margin has stayed between 35% and 37% through the integration.
• Debt can fall. Debt of $7.8 billion is under 3 times EBITDAC, and my Base free cash flow is enough to repay it over time or fund buybacks and dividends.

What could go wrong?

• Organic growth stays at zero. Organic revenue fell in the second quarter and grew 0.3% or less in the first half. If property rates keep falling, growth could be negative in 2027.
• Integration. Accession is a large acquisition that is not fully integrated. Acquisition and integration costs were $57 million in the half.
• Interest and amortization. Interest expense doubled to $100 million a quarter and amortization to $110 million, which reduces reported earnings.
• Earnings quality. First-half results include gains from changes in earn-out liabilities ($34 million) and an escrow mark-to-market ($69 million) that I exclude.
• Earn-outs. The size of unpaid earn-outs is not stated in the release and is not in my numbers.

Management execution

Management has a long record of buying and integrating brokers and holds EBITDAC margins in the mid-30s through the integration. It has not produced organic growth for two quarters, and it issued equity as well as debt to fund the deal. Management credibility scores 13/20.

Stock Analyza scorecard

Business quality is average, held back by a return on capital only modestly above its cost, a more leveraged balance sheet than before 2025 and a growth rate that depends on acquisitions.

The valuation score is below the middle of the fair-value range because the price is only 11% under Base, 38% over Bear and the two methods are 20.6% apart.

Confidence score

Confidence is C. Data quality is 3/5 because earn-out liabilities are not stated, the share count has two figures and I did not read the annual report in full. Accounting transparency is 3/5 because of adjusted items and fiduciary balances. Valuation robustness is 3/5 because the methods are 20.6% apart.

What I would watch from here

Next review: the third quarter report, expected around late October 2026 (date not confirmed).

The three most important thesis breakers

1. Organic revenue growth stays at or below zero through 2027, which removes the recovery that the price already assumes.
2. The adjusted EBITDAC margin falls below 34%, because Base holds it near 36%.
3. Large unrecorded earn-outs or a further debt-funded deal push net debt above 3 times EBITDAC.

Adversarial review

I recomputed every table from the listed inputs and the arithmetic reconciles. Revenue, EBITDAC, interest, debt and cash for 2026 come from the second quarter release, and free cash flow history comes from the cash flow statements. The Base paths, the tax rate, the multiples and the dilutive shares are my estimates. The strongest bullish counter-thesis is that Brown & Brown trades at a trough multiple because of a temporary property-rate cycle, and that history says organic growth returns to 6% or more once rates stabilize. If that happens the Bull value of $96.06 is reasonable. The strongest bearish counter-thesis is that the 2025 growth was bought, the integration is hiding weaker underlying economics and earn-outs are bigger than disclosed.

The choices that lean generous are a recovery to 4% organic growth, a 36.5% margin and no further acquisition cost. The ones that lean conservative are deducting stock pay, excluding earn-out gains and escrow gains and using the larger share count. I did not tune any of them toward a verdict. Publication gate: PASS_WITH_WARNING, because earn-out liabilities are unavailable and the methods are 20.6% apart.

Not available or estimated. Unavailable: earn-out liabilities, Accession's standalone figures, 2026 guidance, a verified peer table, the full annual report. Estimated: dilutive awards, the tax rate, the forward path, the multiples, the discount rate, the historical multiples.

Final verdict: hold at $62.88

Brown & Brown is a good business that fell because growth stopped, and the price already assumes it comes back. At $62.88 the shares are within 1% of my primary value and 11% below my triangulated Base, which is a fair price with no margin of safety. I would want a price between about $35 and $46, or two quarters of organic growth above 3% that justify a lower margin of safety, before treating it as a buy.

VERDICT: HOLD at $62.88; Triangulated Base $70.70; upside 12.4%; required MOS 50%; maximum buy price $35.35. The main thesis breaker is organic revenue that stays flat while debt and interest remain high.

Sources

Primary sources include Brown & Brown's second quarter 2026 earnings release (organic revenue, adjusted EBITDAC, debt, cash, reconciling items), the trade press coverage of the quarter, and the financial statement history and statistics on stockanalysis.com.

The reference market price is the October 9, 2026 close of $62.88. Balance sheet items are as of June 30, 2026. Third quarter results were not yet available. The owner free cash flow path, the multiples, the discount rate and terminal growth are analytical estimates, not company guidance.