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Can AON Q2 Earnings Beat on Commercial Risk Solutions Growth?

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Aon plc (AON - Free Report) is set to beat on earnings for the second quarter of 2023, the results for which are scheduled to be released on Jul 28, before the opening bell.

What Do the Estimates Say?

The Zacks Consensus Estimate for second-quarter earnings per share of $2.82 has witnessed three upward revisions in the past month against no movement in the opposite direction. The estimate is indicative of a 7.2% increase from the year-ago quarter’s reported earnings of $2.63 per share. The Zacks Consensus Estimate for revenues is pegged at $3.2 billion, suggesting a rise of 5.9% from the year-ago quarter’s reported figure.

AON’s earnings beat estimates in three of the trailing four quarters and missed once, the average surprise being 1.6%. This is depicted in the graph below.

Aon plc Price and EPS Surprise

Aon plc Price and EPS Surprise

Aon plc price-eps-surprise | Aon plc Quote

What the Quantitative Model Suggests

Our proven model predicts a likely earnings beat for AON this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is precisely the case here.

Earnings ESP: AON has an Earnings ESP of +2.56%. This is because the Most Accurate Estimate is currently pegged at $2.90 per share, higher than the Zacks Consensus Estimate of $2.82. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AON currently has a Zacks Rank #3.

Before we get into what to expect for the to-be-reported quarter in detail, it’s worth taking a look at AON’s previous-quarter performance first.

Q1 Earnings Rewind

In the last reported quarter, the leading global professional services company’s adjusted earnings per share of $5.17 missed the Zacks Consensus Estimate by 2.3%, primarily due to increased operating expenses. However, the negatives were partially offset by strong retention, business generation, growth in core P&C, and solid performance in Commercial Risk Solutions’ Latin America, EMEA and Pacific region operations.

Now, let us see how things have shaped up prior to the second-quarter earnings announcement.

Factors Driving Q2 Performance

Commercial Risk Solutions’ performance in the second quarter is likely to have gained from new business generation, robust retention and management of the renewal book portfolio. Increased travel-related spending, global exposure and pricing are likely to have benefited its performance in the quarter under review.

Our estimate for the Commercial Risk Solutions line’s revenues indicates 3% growth from $1,692 million a year ago. The unit’s performance is likely to have been boosted by solid growth in Latin America, EMEA and Pacific regions. Also, its core P&C operations are likely to have improved in the quarter under review.

Our estimate for the Health Solutions line’s second-quarter revenues suggests 5% growth from the year-ago level. Growth in core health and benefits brokerage is likely to have aided the segment. Also, improvement in human capital is likely to have boosted the unit’s results in the second quarter.

Our estimate for Reinsurance Solutions’ revenues indicates a 12% jump from a year ago. It is likely to have witnessed growth in the to-be-reported quarter on the back of consistent new business generation and strong retention. Improvement in Strategy and Technology Group is likely to have benefited the unit in the second quarter.

We expect Wealth Solution’s revenues in the second quarter to have increased 1% from the year-ago period. Increased advisory demand, project-related work and retirement growth are likely to have aided the unit in the quarter under review.

All the factors stated above are likely to have positioned the company for overall year-over-year growth and an earnings beat. However, escalating expenses due to substantial investments in the priority areas for long-term growth and an increase in certain discretionary and other expenses are likely to have partially offset the upside. 

Our model suggests that information technology related costs are likely to have increased nearly 10% in the second quarter, while other general costs are expected to have climbed almost 5% year over year.

Other Stocks That Warrant a Look

Here are some other companies worth considering from the broader finance space, as our model shows that these too have the right combination of elements to beat on earnings this time around:

American Equity Investment Life Holding Company has an Earnings ESP of +1.70% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for American Equity Investment’s bottom line for the to-be-reported quarter is pegged at $1.67 per share, which indicates a 70.4% increase from the year-ago period. The consensus estimate for AEL’s revenues is pegged at $555 million.

Aflac Incorporated (AFL - Free Report) has an Earnings ESP of +1.41% and a Zacks Rank of 3.

The Zacks Consensus Estimate for Aflac’s bottom line for the to-be-reported quarter is pegged at $1.42 per share, which remained stable over the past week. AFL beat earnings estimates in all the past four quarters, with an average surprise of 8.2%.

Ares Management Corporation (ARES - Free Report) has an Earnings ESP of +0.20% and a Zacks Rank of 3.

The Zacks Consensus Estimate for Ares Management’s bottom line for the to-be-reported quarter is pegged at 84 cents per share, suggesting a 13.5% year-over-year increase. The consensus estimate for revenues is pegged at $725.8 million. ARES beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 2%.

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