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Aon PLC (AON) Up 5.9% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Aon PLC (AON - Free Report) . Shares have added about 5.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aon PLC Earnings Beat, Revenues Miss Estimates in Q1
Aon plc’s first-quarter 2017 adjusted operating earnings of $1.45 per share surpassed the Zacks Consensus Estimate of $1.28 by 2.8%. Earnings also increased 20% from the year-ago quarter.
Operating margin decreased 410 basis points (bps) to 14.4%. Operating margin, adjusted for certain items, increased 220 bps to 22.3%.
Operational Update
Aon’s total revenue grew 5% to $2.4 billion in the first quarter but missed the Zacks Consensus Estimate of $2.5 billion. The year-over-year increase in revenues was supported by 4% growth in organic revenues.
Operating expenses increased 10% year over year to $2 billion in the first quarter, primarily due to higher restructuring costs, operating expenses related to acquisitions and increased expenses to support organic revenue growth. However, this was partially offset by the favorable impact of currency translations, reduction in expenses related to certain hedging programs, and savings from restructuring activities and operational initiatives.
Organic Revenue Drivers
Commercial Risk Solutionsorganic revenues increased 2% over the prior-year period on solid growth across the U.S., EMEA, Asia, and Pacific regions, partially offset by a decline in Latin America.
Reinsurance Solutions organic revenues increased 2% over the prior-year period on growth across every product line, including treaty, facultative, and capital markets. The upside was partially offset by a modest unfavourable market impact globally.
Retirement Solutions organic revenues increased 3% over the prior-year period on continued growth in investment consulting, primarily for delegated investment management. Also, growth in talent – particularly compensation and engagement services – drove the upside.
Health Solutions organic revenues increased 14% over the prior-year period on solid growth in health & benefits brokerage, globally. This included double-digit growth across Asia and EMEA alongside double-digit growth in health care exchanges driven by follow-on enrolment on the retiree exchange and certain project-related work.
Data & Analytic Services organic revenues increased 5% over the prior-year period on strong growth across Affinity, with particular strength in the U.S. across all product lines.
Financial Position
Cash flow from operations for the first quarter rose 26% year over year to $182 million, mainly driven by operational improvement. This was partially offset by $31 million of cash restructuring charges.
Free cash flow for the first nine months was $148 million, up 38% year over year due to growth in cash flow from operations and a $3 million decrease in capital expenditures.
Share Repurchase and Dividend Update
During the quarter, average diluted shares outstanding decreased to 267.0 million from 273.7 million in the prior-year quarter. The company repurchased 1.1 million Class An Ordinary Shares for approximately $125 million in the quarter. As of Mar, 2017, the company had a $7.7 billion authorization remaining under its share repurchase program.
In Apr 2017, the company announced a 9% increase to its quarterly cash dividend
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7.7% due to these changes.
At this time, Aon PLC's stock has a subpar Growth Score of 'D', while it is doing a bit better on the momentum front with 'C'.The stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is solely suitable for momentum investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.
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Aon PLC (AON) Up 5.9% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Aon PLC (AON - Free Report) . Shares have added about 5.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aon PLC Earnings Beat, Revenues Miss Estimates in Q1
Aon plc’s first-quarter 2017 adjusted operating earnings of $1.45 per share surpassed the Zacks Consensus Estimate of $1.28 by 2.8%. Earnings also increased 20% from the year-ago quarter.
Operating margin decreased 410 basis points (bps) to 14.4%. Operating margin, adjusted for certain items, increased 220 bps to 22.3%.
Operational Update
Aon’s total revenue grew 5% to $2.4 billion in the first quarter but missed the Zacks Consensus Estimate of $2.5 billion. The year-over-year increase in revenues was supported by 4% growth in organic revenues.
Operating expenses increased 10% year over year to $2 billion in the first quarter, primarily due to higher restructuring costs, operating expenses related to acquisitions and increased expenses to support organic revenue growth. However, this was partially offset by the favorable impact of currency translations, reduction in expenses related to certain hedging programs, and savings from restructuring activities and operational initiatives.
Organic Revenue Drivers
Commercial Risk Solutions organic revenues increased 2% over the prior-year period on solid growth across the U.S., EMEA, Asia, and Pacific regions, partially offset by a decline in Latin America.
Reinsurance Solutions organic revenues increased 2% over the prior-year period on growth across every product line, including treaty, facultative, and capital markets. The upside was partially offset by a modest unfavourable market impact globally.
Retirement Solutions organic revenues increased 3% over the prior-year period on continued growth in investment consulting, primarily for delegated investment management. Also, growth in talent – particularly compensation and engagement services – drove the upside.
Health Solutions organic revenues increased 14% over the prior-year period on solid growth in health & benefits brokerage, globally. This included double-digit growth across Asia and EMEA alongside double-digit growth in health care exchanges driven by follow-on enrolment on the retiree exchange and certain project-related work.
Data & Analytic Services organic revenues increased 5% over the prior-year period on strong growth across Affinity, with particular strength in the U.S. across all product lines.
Financial Position
Cash flow from operations for the first quarter rose 26% year over year to $182 million, mainly driven by operational improvement. This was partially offset by $31 million of cash restructuring charges.
Free cash flow for the first nine months was $148 million, up 38% year over year due to growth in cash flow from operations and a $3 million decrease in capital expenditures.
Share Repurchase and Dividend Update
During the quarter, average diluted shares outstanding decreased to 267.0 million from 273.7 million in the prior-year quarter. The company repurchased 1.1 million Class An Ordinary Shares for approximately $125 million in the quarter. As of Mar, 2017, the company had a $7.7 billion authorization remaining under its share repurchase program.
In Apr 2017, the company announced a 9% increase to its quarterly cash dividend
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 7.7% due to these changes.
Aon PLC Price and Consensus
Aon PLC Price and Consensus | Aon PLC Quote
VGM Scores
At this time, Aon PLC's stock has a subpar Growth Score of 'D', while it is doing a bit better on the momentum front with 'C'.The stock was allocated also a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is solely suitable for momentum investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. The stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.