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Aon (AON) Down 4.2% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for Aon PLC (AON - Free Report) . Shares have lost about 4.2% in that time frame, outperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is AON due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aon’s fourth-quarter 2017 adjusted operating earnings of $2.35 surpassed the Zacks Consensus Estimate by 0.4%. The bottom line also increased 18% from the year-ago quarter.
Adjusted margin, adjusted for certain items, increased 200 basis points to 27.5%.
Aon’s total revenues grew 10% year over year to $2.9 billion in the fourth quarter and surpassed the Zacks Consensus Estimate by 3.6%. The increase was supported by 6% organic revenue growth, 2% rise related to acquisitions and net of divestitures, and 2% favorable impact from foreign currency translation.
Operating expenses increased 11% to $2.4 billion in the quarter.
Full-Year 2017 Updates
For 2017, Aon’s adjusted earnings per share was $6.52, up 17% year over year. The figure was in line with the Zacks Consensus Estimate.
The company generated total revenues of $10 billion, up 6% year over year. The upside was driven by 4% organic revenue growth and a 2% acquisitions-related increase and net of divestitures.
Organic Revenue Drivers (Quarterly)
Commercial Risk Solutions: Organic revenues increased 5% year over year on the back of strong growth in U.S. retail and internationally driven by the Asia and Pacific regions, and new client wins in the captive management business.
Reinsurance Solutions: Organic revenues increased 8% from the prior-year quarter. The rise was driven by solid growth across all the major product lines, especially in treaty placements driven by new business generation and growth in both facultative placements and capital markets transactions.
Retirement Solutions: Organic revenues grew 4% from the prior-year quarter. This was driven by continued improvement in investment consulting and growth in Aon’s Talent, Rewards, and Performance practice, especially in Rewards, assessment services and investment consulting, mainly for delegated investment management.
Health Solutions: Organic revenues rose 6% year over year owing to solid growth globally in health & benefits brokerage.
Data & Analytic Services: Organic revenues climbed 12% year over year driven by strong growth across Affinity, particularly in the United States, and due to increased claims activity in the flood business pursuant to certain catastrophic events in 2017.
Financial Position
Cash flow from operations for 2017 decreased 63% to $669 million year over year. The decline primarily reflects cash tax payments related to the divestiture of its outsourcing businesses in the second quarter, cash restructuring charges and transaction costs related to divested business. This was partially offset by operational improvement.
Free cash flow decreased 71% to $486 million in 2017 from the prior year, reflecting a decline in cash flow from operations and a $27 million increase in capital expenditures.
Share Repurchase and Dividend Update
Weighted average diluted shares outstanding decreased 5.1% year over year to 254.5 million in the fourth quarter.
The company repurchased 18 million Class An Ordinary shares for approximately $2.4 billion in 2017.
In January 2018, the company declared a quarterly cash dividend of 36 cents per share payable on Feb 15, to shareholders on record as of Feb 1
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.
At this time, AON has a subpar Growth Score of D, a grade with the same score on the momentum front. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall,the stock has an aggregate VGM score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is solely suitable for value investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, AON has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Aon (AON) Down 4.2% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Aon PLC (AON - Free Report) . Shares have lost about 4.2% in that time frame, outperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is AON due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aon’s Q4 Earnings Surpass Expectations, Improve Y/Y
Aon’s fourth-quarter 2017 adjusted operating earnings of $2.35 surpassed the Zacks Consensus Estimate by 0.4%. The bottom line also increased 18% from the year-ago quarter.
Adjusted margin, adjusted for certain items, increased 200 basis points to 27.5%.
Aon’s total revenues grew 10% year over year to $2.9 billion in the fourth quarter and surpassed the Zacks Consensus Estimate by 3.6%. The increase was supported by 6% organic revenue growth, 2% rise related to acquisitions and net of divestitures, and 2% favorable impact from foreign currency translation.
Operating expenses increased 11% to $2.4 billion in the quarter.
Full-Year 2017 Updates
For 2017, Aon’s adjusted earnings per share was $6.52, up 17% year over year. The figure was in line with the Zacks Consensus Estimate.
The company generated total revenues of $10 billion, up 6% year over year. The upside was driven by 4% organic revenue growth and a 2% acquisitions-related increase and net of divestitures.
Organic Revenue Drivers (Quarterly)
Commercial Risk Solutions: Organic revenues increased 5% year over year on the back of strong growth in U.S. retail and internationally driven by the Asia and Pacific regions, and new client wins in the captive management business.
Reinsurance Solutions: Organic revenues increased 8% from the prior-year quarter. The rise was driven by solid growth across all the major product lines, especially in treaty placements driven by new business generation and growth in both facultative placements and capital markets transactions.
Retirement Solutions: Organic revenues grew 4% from the prior-year quarter. This was driven by continued improvement in investment consulting and growth in Aon’s Talent, Rewards, and Performance practice, especially in Rewards, assessment services and investment consulting, mainly for delegated investment management.
Health Solutions: Organic revenues rose 6% year over year owing to solid growth globally in health & benefits brokerage.
Data & Analytic Services: Organic revenues climbed 12% year over year driven by strong growth across Affinity, particularly in the United States, and due to increased claims activity in the flood business pursuant to certain catastrophic events in 2017.
Financial Position
Cash flow from operations for 2017 decreased 63% to $669 million year over year. The decline primarily reflects cash tax payments related to the divestiture of its outsourcing businesses in the second quarter, cash restructuring charges and transaction costs related to divested business. This was partially offset by operational improvement.
Free cash flow decreased 71% to $486 million in 2017 from the prior year, reflecting a decline in cash flow from operations and a $27 million increase in capital expenditures.
Share Repurchase and Dividend Update
Weighted average diluted shares outstanding decreased 5.1% year over year to 254.5 million in the fourth quarter.
The company repurchased 18 million Class An Ordinary shares for approximately $2.4 billion in 2017.
In January 2018, the company declared a quarterly cash dividend of 36 cents per share payable on Feb 15, to shareholders on record as of Feb 1
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.
Aon PLC Price and Consensus
Aon PLC Price and Consensus | Aon PLC Quote
VGM Scores
At this time, AON has a subpar Growth Score of D, a grade with the same score on the momentum front. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall,the stock has an aggregate VGM score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is solely suitable for value investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, AON has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.