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Aon (AON) Up 10.6% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Aon (AON - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Aon's Q3 Earnings Surpass Estimates, Increase Y/Y
Aon’s third-quarter 2020 operating earnings of $1.53 per share surpassed the Zacks Consensus Estimate by 1.3%. Further, the bottom line improved 5.5% year over year on the back of reduced operating expenses.
However, total revenues were flat year over year at $2.4 billion, which included unchanged organic revenues. Meanwhile, the top line beat the consensus mark by 2.1%. This upside was on the back of better performance by Reinsurance Solutions.
Operating margin grew 340 basis points (bps) to 18.5% while operating margin, adjusted for certain items, expanded 40 bps to 22.4%.
Total operating expenses in the second quarter declined 4% year over year to $1.9 billion, primarily owing to reduced information technology costs and general expenses plus depreciation of fixed costs.
Organic Revenue Catalysts
Commercial Risk Solutions: Organic revenues inched up 2% year over year on the back of strong growth across every major geography, highlighted by double-digit growth in Asia, primarily driven by solid retention and management of the renewal book portfolio. Results also reflect robust growth in core P&C in the United States. The segment, however, reported a year-over-year 1% dip in total revenues to $1 billion.
Reinsurance Solutions: Organic revenues improved 13% owing to double-digit growth across treaty, facultative and capital markets transactions, reflecting constant new business generation. Moreover, total revenues for the segment improved 10% year over year to $321 million.
Retirement Solutions: Organic revenues slid 5% year over year. The results were impacted by a continued pressure on the company’s more discretionary parts of the business due to the pandemic, mainly in Human Capital for rewards and assessment services. Further, total revenues decreased 3% year over year to $468 million.
Health Solutions: Organic revenues inched up 1% year over year, primarily on the back of robust international growth, particularly in Asia and the Pacific region as well as a modest positive impact from the timing of certain revenues. The metric from this segment increased 1% year over year to $282 million.
Data & Analytic Services: Organic revenues fell 7% year over year due to reduction in travel and events practice, globally. Revenues increased 3% year over year to $274 million.
Financial Position
In the first nine months of 2020, the company’s cash flow from operations soared 74% from the level in the same period of 2019 to $2 billion. Moreover, the company’s free cash flow of $1.9 billion skyrocketed 91% from the figure in the first nine months of 2019. This upside can be attributed to an increase in cash flow from operations and a decrease in capital expenditures.
The company exited the third quarter with cash and cash equivalents of $821 million, up 3.9% from the level at 2019 end. As of Sep 30, 2020, Aon had total assets worth $31.3 billion, up 6.6% from the level on Dec 31, 2019.
As of Sep 30, 2020, long-term debt stands at $7.2 billion, increasing 9.4% from the level at 2019 end.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Aon has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Aon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Aon (AON) Up 10.6% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Aon (AON - Free Report) . Shares have added about 10.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Aon's Q3 Earnings Surpass Estimates, Increase Y/Y
Aon’s third-quarter 2020 operating earnings of $1.53 per share surpassed the Zacks Consensus Estimate by 1.3%. Further, the bottom line improved 5.5% year over year on the back of reduced operating expenses.
However, total revenues were flat year over year at $2.4 billion, which included unchanged organic revenues. Meanwhile, the top line beat the consensus mark by 2.1%. This upside was on the back of better performance by Reinsurance Solutions.
Operating margin grew 340 basis points (bps) to 18.5% while operating margin, adjusted for certain items, expanded 40 bps to 22.4%.
Total operating expenses in the second quarter declined 4% year over year to $1.9 billion, primarily owing to reduced information technology costs and general expenses plus depreciation of fixed costs.
Organic Revenue Catalysts
Commercial Risk Solutions: Organic revenues inched up 2% year over year on the back of strong growth across every major geography, highlighted by double-digit growth in Asia, primarily driven by solid retention and management of the renewal book portfolio. Results also reflect robust growth in core P&C in the United States. The segment, however, reported a year-over-year 1% dip in total revenues to $1 billion.
Reinsurance Solutions: Organic revenues improved 13% owing to double-digit growth across treaty, facultative and capital markets transactions, reflecting constant new business generation. Moreover, total revenues for the segment improved 10% year over year to $321 million.
Retirement Solutions: Organic revenues slid 5% year over year. The results were impacted by a continued pressure on the company’s more discretionary parts of the business due to the pandemic, mainly in Human Capital for rewards and assessment services. Further, total revenues decreased 3% year over year to $468 million.
Health Solutions: Organic revenues inched up 1% year over year, primarily on the back of robust international growth, particularly in Asia and the Pacific region as well as a modest positive impact from the timing of certain revenues. The metric from this segment increased 1% year over year to $282 million.
Data & Analytic Services: Organic revenues fell 7% year over year due to reduction in travel and events practice, globally. Revenues increased 3% year over year to $274 million.
Financial Position
In the first nine months of 2020, the company’s cash flow from operations soared 74% from the level in the same period of 2019 to $2 billion.
Moreover, the company’s free cash flow of $1.9 billion skyrocketed 91% from the figure in the first nine months of 2019. This upside can be attributed to an increase in cash flow from operations and a decrease in capital expenditures.
The company exited the third quarter with cash and cash equivalents of $821 million, up 3.9% from the level at 2019 end. As of Sep 30, 2020, Aon had total assets worth $31.3 billion, up 6.6% from the level on Dec 31, 2019.
As of Sep 30, 2020, long-term debt stands at $7.2 billion, increasing 9.4% from the level at 2019 end.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Aon has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Aon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.