Initiated 2026-09-28 · Price $31.85 (close 2026-09-25, stockanalysis.com) · Mkt cap $4.50bn as-converted (141.3mm adjusted diluted shares incl. Class B; $4.44bn on stockanalysis) · Financials / insurance brokerage · Model: verified

Rating: Sell — Conviction: Low

Baldwin has just doubled in size by buying CAC Group, and the adjusted numbers look healthy: Q2 adjusted EBITDA +37% at a 23.7% margin. Underneath, organic growth has slowed to 2%, and net leverage sits at 4.5x, the top of the target range, which has stopped buybacks. $657mm of earnouts, deferred consideration and tax-receivable claims sit on top of $2.5bn of debt. Once stock pay and the integration charges that recur every year are counted, the model's base case is well below the price, and the bear case leaves almost nothing for equity. Conviction is Low because the thesis turns on how much of the "one-time" cost really goes away.

Model value range vs price
Bear $1.82Base $22.99Bull $47.40Price $31.85

Business overview

Baldwin distributes insurance and earns commissions and fees. H1 2026 revenue was $1,025mm, up 29%. The business has four parts:

Segment revenue mix is n/a (unverified); the release gives growth rates but not shares. Three variables drive earnings: organic growth, which depends on P&C rates, exposure units and new business; how much integration and deal cost converts into lasting margin; and leverage and interest cost.

Competition

Bull case

  1. Organic growth re-accelerates. Management says the headwinds are "largely lapped" and cites ~8–10% normalized organic growth. CAC grew 23% with new business +43%. Plays out if H2 2026 reported organic growth returns to mid-to-high single digits. Model: rev_growth
  2. Integration costs roll off. The adjusted margin rose 110bp to 23.7%. If transaction, integration and transformation charges fade after the CAC year, the GAAP margin converges toward adjusted less stock pay. Plays out if those charges fall below ~$20mm a quarter in 2027. Model: ebitda_margin
  3. Deleveraging re-rates the equity. At 4.5x, each turn of leverage paid down moves value from debt to equity. Plays out if net leverage falls below 4.0x by end-2027. Model: exit_ev_ebitda

Bear case

  1. The soft market persists. Q2 organic growth was 2%, with rate and exposure down 240bp. Commissions follow premiums down. Plays out if property and reinsurance rates keep falling into 2027. Model: rev_growth
  2. "One-time" costs recur. In H1 2026, transaction, closing, earnout, transformation, severance and other charges were ~$82mm, and stock pay another $33.5mm, against $254.0mm of adjusted EBITDA. GAAP operating income was negative on a TTM basis. Plays out if charges stay near FY2024–FY2025 levels. Model: ebitda_margin
  3. The balance sheet leaves no slack. Debt is $2.5bn and other claims $657mm (earnouts $346.8mm, deferred consideration $165.2mm, TRA $144.6mm). Buybacks have stopped, and earnouts ($120.9mm current) absorb cash first. Plays out if organic growth stays low and leverage does not fall. Model: other_claims, exit_ev_ebitda

Valuation & balance sheet

Metric (definition) Current Own history (range or 5y avg) Peers Source, as-of
Forward P/E (consensus adjusted EPS $2.01 FY2026) 14.0x n/a (unverified) BRO 13.1x · AJG 16.5x · RYAN 16.7x stockanalysis.com, 2026-09-28
EV/EBITDA, model basis (EV $7,474mm = as-converted market cap + $2,502mm face debt − $184.5mm cash + $656.6mm other claims; leases excluded; GAAP EBITDA after SBC and charges) 34.9x FY2025 · 64x TTM (FY2025 excludes CAC) GAAP EBITDA margin FY2021–FY2025 8.9–14.2% n/a on this basis model-inputs.json
EV/EBITDA (aggregator, TTM) 58.5x n/a (unverified) BRO 9.5x (acquisition-distorted) · AJG 16.8x · RYAN 14.7x stockanalysis.com, 2026-09-28
EV / pro forma 2026 adjusted EBITDA (>$470mm, merger announcement) ~15.9x n/a n/a The Insurer, 2025-12-02

Model-implied value range (from model-summary.json; generic module, Gordon-growth DCF and exit-EV/EBITDA DCF, midpoints): Bear $1.82 · Base $22.99 · Bull $47.40 per share, i.e. implied returns of −94.3% / −27.8% / +48.8% vs $31.85. These ranges show how the bull and bear drivers translate into value; they are not price targets.

Balance sheet:

Model note: tier full, status built, verification verified (LibreOffice matched every formula cell). There are no unverified inputs and no assumptions without basis. Scenario consistency is OK on all 14 rows; S6 was corrected from − to ± because the lower discount rate offsets the revenue loss.

Scenario stress test

Reasoned from the bull/bear drivers above. The model column comes from the scenario overlays (Base case + shock).

Scenario Effect Mechanism Magnitude Model Δ value vs Base ($/sh)
S1 Fast equity crash − Levered small-cap financial de-rates; commissions unaffected without recession Med −$3.50
S2 Slow bear / recession − Exposure units and housing-linked revenue shrink; leverage amplifies. Milder than Base − Bear ($21.17) because it lasts two years, while the bear case is a permanent soft market with recurring charges High −$5.74
S3 Rapid rate shock − Higher discount rate on a levered equity; mortgage and homebuilder volumes fall High −$5.84
S4 Slow rate grind − Higher discount rate; floating debt costs more Low −$2.51
S5 Soft-landing cuts + Lower rates help housing-linked revenue and the levered equity High +$6.48
S6 Recession-driven cuts ± Exposure units shrink, roughly offset by a lower discount rate Low +$0.49
S7a Credit liquidity shock − Secured-loan spreads gap wider on a 4.5x borrower; the M&A model stalls High −$5.78
S7b Slow default cycle − Refinancing risk for the 2029–2031 maturities; higher discount rate Med −$4.29
S8 Stagflation − Premium inflation lifts commissions, but higher rates weigh more Low −$2.68
S9a Dollar spike 0 No material effect, not modeled; domestic broker Low $0.00
S9b Dollar slide 0 No material effect, not modeled Low $0.00
S10 Melt-up + Risk appetite favours levered roll-ups Low +$2.80
S11 Energy supply shock 0 No material effect, not modeled Low $0.00
S12 Mega-cap/AI derating 0 No material effect, not modeled Low $0.00

Currently active/on watch per the playbook: S3 is partially active per state.md, and the macro log records all three legs crossed (10Y 5.17% on 2026-09-25). S3 costs Baldwin $5.84 in the model. S8, S10 and S11 are on watch.

Model value change vs Base, by scenario
S3 Rapid rate shock−$5.84S7a Credit liquidity shock−$5.78S2 Slow bear / recession−$5.74S7b Slow default cycle−$4.29S1 Fast equity crash−$3.50S8 Stagflation−$2.68S4 Slow rate grind−$2.51S9a Dollar spike$0.00S9b Dollar slide$0.00S11 Energy supply shock$0.00S12 Mega-cap/AI derating$0.00S6 Recession-driven cuts+$0.49S10 Melt-up+$2.80S5 Soft-landing cuts+$6.48

What would change the call

Upgrades if:

Downgrades if: (i.e. conviction in the Sell rises)

Watch items

Sources