Credit rating giant Moody's Investors Service recently assigned senior ratings of (P)Baa2 and provisional subordinated ratings of (P)Baa3 to the multi-purpose shelf registration of UK-domiciled Aon Plc (AON - Free Report) along with its main US holding company, Aon Corporation. Aon Corporation would guarantee debt given by the parent company, and Aon Plc would guarantee debt issued by Aon Corporation, which would be consistent with the group’s current debts. The rating outlook for these entities is stable.
The ratings of the company reflect its global market presence, product, region as well as client diversification, competence in providing risk, retirement and health solutions to middle-market, national and global clients. It also indicates the company’s growth in EBITDA and acknowledged its credit metrics through strategic buyouts, organic growth and restructuring actions. However, the same has been partially offset by the company’s financial leverage, its constant dividends to stakeholders and share buybacks plus potential liabilities arising from errors in the delivery of professional services.
The company’s 2017 divestiture generated after-tax proceeds of nearly $3 billion. It used the funds generated along with cash from operations to sponsor 17 buyouts last year for a consideration of $1.2 billion and share buybacks worth $2.4 billion. During the first six months of 2018, Aon Plc acquired five companies for around $59 million, which accounted for around 4% organic growth in the same timeframe.
Per the credit rating agency’s expectation, the company had debt-to-EBITDA ratio in the range of 3x-3.5x and coverage of interest in the 5x-7x band for a year through June 2018. This incorporates Moody’s standard accounting adjustments for pensions and leases and are in line with the rating expectations.
Factors That Can Drive Future Ratings
Factors that can lead to a rating upgrade include debt-to-EBITDA ratio below 3x, (EBITDA - capex) coverage of interest consistently above 6x and net profit margin continuously more than 9%.
Meanwhile, factors causing a downgrade include debt-to-EBITDA ratio above 3.5x, (EBITDA - capex) coverage of interest below 4x or net profit margin under 6%.
Shares of this Zacks Rank #3 (Hold) company have rallied around 5.5% in a year’s time, outperforming its industry’s growth of nearly 3%.
Stocks to Consider
Investors interested in the insurance sector might take a look at a few better-ranked stocks like Brown & Brown, Inc. (BRO - Free Report) , ProAssurance Corporation (PRA - Free Report) and RenaissanceRe Holdings Ltd. (RNR - Free Report) .
Brown & Brown sells insurance products in the United States, England, Canada, Bermuda and the Cayman Islands. The company holds a Zacks Rank #2 (Buy) and managed to deliver positive results in three of the trailing four quarters with an average positive surprise of 7.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
ProAssurance provides property and casualty insurance and reinsurance products in the United States. The company carries a Zacks Rank of 2 and came up with an average three of four-quarter earnings surprise of 8.26%.
RenaissanceRe provides reinsurance and insurance coverages in the United States and around the globe. The company sports a Zacks Rank #1 (Strong Buy) and pulled of an average three of four-quarter positive surprise of 31.16%.
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