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Here's Why Investors Should Hold on to AON Stock Right Now

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Aon plc (AON - Free Report) is well-poised for growth, capitalizing on strong retention, new business, and currency benefits across segments. Its solid property and casualty business, organic growth strategies and strategic acquisitions drive expansion and success.

Headquartered in Dublin, Ireland, AON offers risk management services, insurance, facultative reinsurance, brokerage and other services. It operates in more than 120 countries and has a market cap of $77.4 billion. With solid prospects, this Zacks Rank #3 (Hold) stock is deemed worthwhile for holding on to at the moment.

AON's Price Performance

The stock has gained 22% in the past six months compared with the industry’s 10.8% growth. The Zacks Finance sector has gained 11.5%, while the S&P 500 Composite has risen 8.1% in the same time frame.

AON's 6-Month Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Key Drivers

Improving product offerings and expanding its product portfolio helps the company retain its client base and generate new businesses. For example, its recent launch of the newly integrated Radford McLagan Compensation Database will expand the analytics capabilities of its existing Human Capital clients. This aligns with Aon's broader strategy of leveraging data-driven insights and innovative tools, as evidenced by solutions like the CyQu tool for cyber risk and the Health Efficiency Analyzer. Such initiatives are expected to fuel ongoing organic revenue growth and strengthen client relationships.

Prudent acquisitions and partnerships form one of the company's main growth strategies. Over the past few years, the company has sealed many buyouts to scale its business and expand product offerings. The company closed the NFP acquisition, a privately held middle-market property and casualty broker, in April 2024. It is expected to boost AON’s top line, driven primarily by incremental M&A.

The company continues to streamline operations, eliminating less profitable assets and focusing more on improving efficiencies. Its Aon United restructuring program will support its margin expansionary targets in the long run. The company is on track to achieve $100 million in savings in 2024 and $350 million in run-rate savings by 2026. However, in the short run, charges from the program might limit profit growth.

The company’s cash-generating abilities help it make shareholder-friendly moves. In 2023, the company bought back shares worth $800 million. It repurchased shares worth $800 million in the first nine months of 2024. It had around $2.5 billion of authorization left under its share repurchase program as of Sept. 30, 2024. The company expects to achieve double-digit three-year compound annual growth rate (CAGR) from 2023-2026.

AON’s Favorable Valuation

From a valuation perspective, AON appears relatively cheap. The company is trading at a forward 12-month price-to-earnings multiple of 20.58X, lower than the industry average of 21.35X.

Estimates for AON

The Zacks Consensus Estimate for 2024 adjusted earnings for AON is currently pegged at $15.43 per share, indicating 9.1% year-over-year growth. The earnings estimate for 2024 has witnessed upward revisions in the past 60 days. The consensus mark for 2025 earnings suggests a further 12.7% jump. The consensus estimate for 2024 and 2025 revenues indicates 17.7% and 11.2% year-over-year growth, respectively.

Key Concerns for AON

There are a few factors that investors should keep an eye on.

The company’s long-term debt is 72.9% of total capital, significantly higher than the industry’s average of 49%. AON exited the third quarter with cash and cash equivalents of $1.1 billion, significantly lower than long-term debt of $17.1 billion. However, the company plans to pay down $2.1 billion in debt in 2024 and reduce leverage to 2.8-3 times in the fourth quarter of 2025.

Its trailing 12-month return on invested capital stands at 7.9%, lagging behind the industry average of 9.6%. This indicates that the company is less efficient at generating returns from its invested capital compared to its peers, signaling weaker capital utilization.

Stocks to Consider

Some better-ranked stocks in the insurance space are Mercury General Corporation (MCY - Free Report) , ProAssurance Corporation (PRA - Free Report) and Lincoln National Corporation (LNC - Free Report) . While Mercury General and ProAssurance sport a Zacks Rank #1 (Strong Buy) at present, Lincoln National carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercury General’s earnings beat estimates in each of the trailing four quarters, the average surprise being 694.28%. The Zacks Consensus Estimate for MCY’s 2024 earnings is pegged at $6.35 per share, which has increased more than 21-fold from the prior-year reported figure. The consensus estimate for revenues implies an improvement of 18.2% from the year-ago actual. The consensus mark for MCY’s 2024 earnings has moved 58.8% north in the past 60 days.

The bottom line of ProAssurance outpaced estimates in three of the trailing four quarters and missed the mark once, the average surprise being 61.46%. The Zacks Consensus Estimate for PRA’s 2024 earnings is pegged at 80 cents per share. A loss of 14 cents per share was incurred in the prior year. The consensus mark for PRA’s 2024 earnings has moved 5.3% north in the past 30 days. 

Lincoln National’s earnings surpassed estimates in each of the last four quarters, the average surprise being 15.9%. The Zacks Consensus Estimate for LNC’s 2024 earnings is pegged at $6.98 per share, which has increased 33.7% from the prior-year reported figure. The consensus mark for revenues indicates a rise of 14.8% from the year-ago actual. The consensus mark for LNC’s 2024 earnings has moved 19.9% north in the past 60 days.


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