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Why Should You Hold Aon's (AON) Stock in Your Portfolio?

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Aon plc (AON - Free Report) remains an investor favorite on the back of its cost-curbing measures, an improving bottom line and inorganic growth strategies.
AON beat on earnings in all the trailing four quarters, the average being 11.62%.

In the last reported quarter, AON witnessed double-digit growth in the priority areas of its health and wealth solutions. With a market cap of $69.66 billion, Aon’s results are consistently benefiting from solid contributions of its Reinsurance Solutions, Commercial Risk Solutions, Health Solutions and Wealth Solutions segments.

Aon’s return-on-equity (ROE) reflects growth potential. Its trailing 12-month ROE of 87.7% compares favorably with the industry average of 29.2%, reflecting its efficiency in utilizing its shareholders’ funds.

Now let’s see what is driving this currently Zacks Rank #3 stock.

Being a leading insurance brokerage company, Aon always made buyouts to boost its portfolio like many of its peers. Its acquisitions mainly aim at expanding its health and benefits business, flood insurance solutions, and risk and insurance solution operations. M&A activities are quite significant in the insurance brokerage space.

Earlier this month, Aon purchased the actuarial software platform Tyche to drive its insurance consulting capabilities for clients. This latest strategic move adds to the insurance brokerage player’s current functionalities that in turn, will help re/insurer clients take informed business decisions. The addition of Tyche allows Aon to offer a single technology platform for insurance clients to integrate capital modelling, pricing and reserving.

Apart from these consolidations, Aon is consistently divesting its non-core operations to streamline its business and deepen its focus on more profitable operations, thus generating a higher return on equity. These initiatives already started showing results by not just simplifying AON’s activities but also aiding its top-line growth.

Owing to its cost-cutting measures, Aon is witnessing solid earnings. In 2021, the bottom line climbed 22% year over year to $12 per share. We expect AON's bottom line to continue performing well in the near term, backed by its core fundamentals, such as a strong capital position and strategic initiatives.

Over the last decade, AON repurchased more than a third of its total shares outstanding on a net basis.

Aon will continue to repurchase shares while maintaining higher-than-normal levels with cash for the near future. AON bought back shares worth $3.5 billion in 2021. It had $1.7 billion of authorization remaining under its share repurchase program as of Dec 31, 2021.

Further Upside Left?

AON expects a mid-single digit or greater organic revenue growth, margin improvement and double-digit free cash flow growth for the current year. It also has a steady pipeline of M&A activities.

The consensus estimate for 2022 earnings indicates an upside of 9.42% from the year-ago reported figure.

Price Performance

Shares of this insurance player have gained 40.4% in a year’s time, outperforming its industry’s growth of 14.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Investment Research
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Stocks to Consider

Some better-ranked stocks in the insurance space are Horace Mann Educators Corporation (HMN - Free Report) , Old Republic International Corporation (ORI - Free Report) and Berkshire Hathaway (BRK.B - Free Report) . While Horace Mann sports a Zacks Rank #1 (Strong Buy), Old Republic and Berkshire Hathaway carry a Zacks Rank #2 (Buy) at present.

Horace Mann’s earnings surpassed estimates in each of the last four quarters, the average being 22.80%. The Zacks Consensus Estimate for HMN’s 2022 earnings suggests an improvement of 1.1%, while the same for revenues suggests growth of 1% from the corresponding year-ago reported figure. The consensus mark for Horace Mann's 2022 earnings has moved 8.4% north in the past 60 days.

The bottom line of Old Republic outpaced earnings estimates in all the last four quarters, the average being 38.74%. The Zacks Consensus Estimate for ORI’s 2022 earnings has moved 3.7% north in the past 60 days. Old Republic has a Value Score of B.

Berkshire Hathaway’s earnings surpassed estimates in three of the trailing four quarters (while missing the mark in one), the average surprise being 11.86%. The Zacks Consensus Estimate for BRK.B’s 2022 earnings suggests an improvement of 6.1% from the year-ago reported figure.

Old Republic and Berkshire Hathaway stocks have gained 18.1% and 36.7%, respectively, in a year, while shares of Horace Mann have lost 3 %.