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Here's Why AON Shares are Attracting Prudent Investors Now

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Aon plc (AON - Free Report) is strategically positioned for growth, leveraging solid retention rates, organic revenue growth, acquisitions and partnerships. The expansion of its Reinsurance Solutions business due to a well-performing Strategy and Technology Group adds further momentum. The favorable impact of fiduciary investment income remains a key driver.

Price Performance & Zacks Rank

Over the past month, shares of AON have gained 3.1%. Headquartered in Dublin, Ireland, AON offers risk management services, insurance, reinsurance brokerage and other services. It operates in more than 120 countries and has a market cap of $65.3 billion.

Due to its solid prospects, this Zacks Rank #2 (Buy) stock is a compelling addition to investment portfolios at the moment.

Let’s delve deeper.

The Zacks Consensus Estimate for AON’s current-year earnings is pegged at $14.36 per share, which has witnessed eight upward estimate revisions in the past 30 days against none in the opposite direction. The estimate indicates 7.2% year-over-year growth. AON beat on earnings in two of the last four quarters and missed twice, the average surprise being 1.4%.

Aon plc Price and EPS Surprise

Aon plc Price and EPS Surprise

Aon plc price-eps-surprise | Aon plc Quote

The consensus estimate for AON's current-year revenues stands at $13.4 billion, indicating 7% year-over-year growth. The company expects its revenues to witness mid-single-digit or higher organic growth for 2023 and beyond. We expect its Reinsurance Solutions and Commercial Risk Solutions businesses to play significant roles in top-line growth.

For 2023, our model projects 9.5% organic revenue growth in Reinsurance Solutions, reaching $2.5 billion, driven by new business and strong retention rates. The Commercial Risk Solutions segment is anticipated to experience 5% organic revenue growth, reaching $7.1 billion, buoyed by robust performance in retail brokerage, particularly in EMEA and Pacific, and a thriving U.S. construction business.

Aon employs acquisitions and partnerships as key growth strategies, focusing on expanding health and benefits, flood insurance and risk operations. Last year, it allocated $162 million to acquisition activities. Notably, the June acquisition of a Chilean employee benefits consulting firm strengthened its Health Solutions unit. A strategic partnership with Cover Whale in August further enhanced the insurance brokerage business. These initiatives position it for sustained long-term growth.

Aon's robust trailing 12-month return on capital at 29.5% outpaced the industry's average of 12.1%. This underscores the company's adeptness in generating substantial returns relative to the capital invested compared to industry benchmarks.

In the third quarter, the company exhibited confidence in its cash-generating ability through a strategic buyback of 2.6 million class A ordinary shares, amounting to approximately $850 million. Concurrently, a quarterly cash dividend of 61.5 cents per share was disbursed, emphasizing the commitment to shareholder value.

With $4.1 billion still earmarked for buybacks as of quarter-end, the company signals an ongoing dedication to returning value. Anticipated high-single-digit growth in free cash flow this year further underscores financial strength and shareholder-focused strategies.

A Risk

However, there is a factor that investors should keep a careful eye on.

Exiting the third quarter with $808 million in cash and cash equivalents, Aon contrasts with a notable long-term debt of $10 billion. Short-term debt and the current portion of long-term debt amounted to $1.3 billion. The long-term debt-to-capital ratio, standing at 98.4%, surpasses the industry average of 47.5%, indicating a relatively higher reliance on debt for capital structure. Nevertheless, we believe that a systematic and strategic plan of action will drive growth and reduce leverage in the long term.

Other Key Picks

Some other top-ranked stocks in the broader Finance space are Assurant, Inc. (AIZ - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Employers Holdings, Inc. (EIG - Free Report) . While Assurant sports a Zacks Rank #1 (Strong Buy) now, Brown & Brown and Employers Holdings carry a Zacks Rank #2 each. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Assurant’s current-year earnings indicates a 27.5% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average surprise of 42.4%. Also, the consensus mark for AIZ’s 2023 revenues suggests 5.4% year-over-year growth.

The Zacks Consensus Estimate for Brown & Brown’s current-year earnings is pegged at $2.75 per share, which indicates 20.6% year-over-year growth. It has witnessed four upward estimate revisions against none in the opposite direction during the past month. BRO beat earnings estimates in each of the past four quarters, with an average surprise of 12.3%.

The consensus mark for Employers Holdings’ current-year earnings indicates a 17.8% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average surprise of 26.5%. Furthermore, the consensus estimate for EIG’s 2023 revenues suggests 17.5% year-over-year growth.

See More Zacks Research for These Tickers

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