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Why Is Aon (AON) Up 7.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Aon (AON - Free Report) . Shares have added about 7.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Aon 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’s Q3 Earnings Top, Increase Y/Y

Aon’s third-quarter operating earnings of $1.31 per share beat the Zacks Consensus Estimate of $1.23 by 6.5% and inched up 1.6% year over year. This was primarily supported by positive performances across key financial metrics, driven by a core operational improvement.

Total revenues increased 6% to $2.3 billion including 6% organic revenue growth and a 2% rise in acquisitions, net of divestitures. However, a 2% unfavorable impact from foreign currency translation limited this upside.

Organic revenue growth was mainly driven by a solid new business generation and retention across its core portfolio along with double-digit growth in certain areas of investments.

Operating margin grew to 11.2% and operating margin, adjusted for certain items, expanded 190 basis points to 18.5%.

Total operating expenses increased 0.1% to $2.1 billion, led by higher information technology, premises expenses and other general expenses.

The adjusted effective tax rate on a comparable basis for the third quarter of 2018 was 12.8% compared with 17.3% in the prior-year quarter. This decrease was primarily driven by a net favorable impact from various discrete tax items as well as changes in geographical distribution of income.

Organic Revenue Drivers

Commercial Risk Solutions: Organic revenues rose 8% on the back of strong growth across every major geography, which reflects solid global new business generation and double-digit growth in the United States and Latin America. The segment witnessed its total revenue rise by 12% year over year to $1 billion.

Reinsurance Solutions: Organic revenues improved 8%, driven by solid growth in facultative placements, especially in treaty placements, driven by new business strength as well as favorable results in the quarter under review, majorly in the United States. However, total revenues for the segment declined 21% year over year.

Retirement Solutions: Organic revenues inched up 2% year over year, driven by solid growth in investment consulting that includes a double-digit increase in delegated investment management along with a rise in talent practice for assessment services.

Health Solutions: Organic revenues were up 8% year over year, led by strong international growth, new business generation in the EMEA region along with another quarter of a solid performance in voluntary benefits across the United States. Its results also reflect solid performance across healthcare exchanges.

Data & Analytic Services: Organic revenues for this segment grew 5% year over year owing to strong growth in Affinity business, particularly in the United States and a better uptick in Aon Client Treaty.

Financial Position Improves

For the first nine months of 2018, adjusted free cash flow increased 5% to $1163 million.

Total current assets stood at $13.3billion, down 2.4% from the level on Dec 31, 2017.

Share Repurchase and Dividend Update

The company repurchased 2.1 million Class An Ordinary shares for nearly $300 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Aon has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated 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.

Outlook

Aon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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