Aon plc (AON Quick QuoteAON - Free Report) is well-positioned for growth, leveraging strength in core property and casualty business, organic revenue growth, acquisitions and partnerships. The influx of new business across multiple revenue lines is poised to amplify momentum, while the positive influence of fiduciary investment income continues to be a pivotal driver.

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 $58.3 billion. With solid prospects, this Zacks Rank #3 (Hold) stock is deemed worthwhile for holding on to at the moment.

Let’s delve deeper.

The Zacks Consensus Estimate for AON’s 2023 earnings is pegged at $14.35 per share, which remained stable over the past week. The estimate indicates 7.2% year-over-year growth. Further, the consensus estimate for 2024 earnings is pegged at $16.22 per share. AON beat on earnings in two of the last four quarters and missed twice, the average surprise being 1.4%.

The consensus estimate for AON's 2023 revenues stands at $13.4 billion, indicating 7% year-over-year growth. For 2024, the consensus mark is pegged at $14.2 billion. The company expects its revenues to witness mid-single-digit or higher organic growth for 2023 and beyond. We expect its Reinsurance Solutions and Health Solutions businesses to play significant roles in its top-line growth.

For 2023, our model projects 9.5% organic revenue growth in Reinsurance Solutions, reaching almost $2.5 billion, driven by new business and strong retention rates. The Health Solutions segment is anticipated to experience 9% organic revenue growth, reaching $2.4 billion, buoyed by strength in Consumer Benefit Solutions, as well as an enhanced data and advisory solutions suite.

Aon employs acquisitions and partnerships as key growth strategies, focusing on expanding health and benefits and risk operations. In December 2023, it agreed to buy NFP, a privately held middle-market property and casualty broker, for $13.4 billion to expand its middle-market segment presence and boost its capabilities in risk, benefits, wealth and retirement plan advisory services. It also partnered with entities like Cover Whale and PayPal, which expanded its customer portfolio. These initiatives position Aon for sustained long-term growth.

Aon's trailing 12-month return on capital of 29.5% outpaces the industry's average of 12.2%. This underscores the company's adeptness in generating substantial returns relative to the capital invested compared to industry benchmarks. Notably, its Pooled Employer Plan has hit the $2 billion milestone in 401(k) assets under administration and commitments.

Its cash-generating abilities help the company take shareholder value boosting measures. In the first nine months of 2023, it bought back shares worth roughly $2 billion and had $4.1 billion of authorization under its share repurchase program as of Sep 30, 2023. For full year 2023, it expects free cash flow to witness high-single-digit growth.

Despite anticipating a near-term decline in free cash flow due to the restructuring program, management remains optimistic about returning to its historical trend of double-digit free cash flow growth in the long run. This optimism is rooted in the growth of operating income and ongoing improvements in working capital.

Risks

However, there are some factors that investors should keep a careful eye on.

Aon exited the third quarter with $808 million in cash and cash equivalents. It contrasts with a substantial long-term debt nearing $10 billion. Also, 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. This can affect its inorganic growth strategies.

The debt-heavy balance sheet has led to an increase in interest expenses. During the initial nine months of 2023, interest expenses surged 22% year over year. For the full year, we expect the metric to jump nearly 20% to $486 million. Nevertheless, we believe that a systematic and strategic plan of action will drive growth and reduce leverage in the long term.

Key Picks

Investors interested in the broader Finance space can look at some better-ranked stocks like Ryan Specialty Holdings, Inc. (RYAN Quick QuoteRYAN - Free Report) , Chubb Limited (CB Quick QuoteCB - Free Report) and Brown & Brown, Inc. (BRO Quick QuoteBRO - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Ryan Specialty’s 2023 full-year earnings indicates a 20.9% year-over-year increase. It beat earnings estimates in two of the past four quarters and met twice, with an average surprise of 5.1%. Also, the consensus mark for RYAN’s 2023 full-year revenues suggests 20.2% year-over-year growth.

The consensus mark for Chubb’s 2023 full-year earnings indicates a 25.9% year-over-year increase. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 6.5%. Furthermore, the consensus estimate for CB’s 2023 full-year revenues suggests 10.8% year-over-year growth.

The Zacks Consensus Estimate for Brown & Brown’s 2023 full-year earnings is pegged at $2.76 per share, which indicates 21.1% year-over-year growth. It has witnessed one upward estimate revision against none in the opposite direction during the past 60 days. BRO beat earnings estimates in each of the past four quarters, with an average surprise of 12.3%.