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Why Should You Hold Aon (AON) in Your Portfolio Right Now?

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Aon plc (AON - Free Report) is well-poised for growth on the back of rising revenues and inorganic growth strategies.

The company boasts an attractive earnings surprise history, having outpaced the Zacks Consensus Estimate in all the trailing four quarters, the average being 3.21%. This trend of consecutive estimate beats corroborates its operational excellence.

Its return on equity — a profitability measure — is 46.1%, better than the industry average of 25.7%. Further, the metric reflects the company’s efficiency in utilizing its shareholders’ funds.

Aon recently reported first-quarter 2019 operating earnings of $3.31, increasing 11.4% year over year on the back of solid revenue growth. The quarter also witnessed a dip in operating expenses and solid contributions by its segments, namely CommercialRisk Solutions, Reinsurance Solutions and Data and Analytic Services and Health Solutions.

The company has witnessed a robust bottom-line improvement over the last many years on the back of its strong fundamentals, such as expansions through buyouts and collaborations, divestitures and a solid financial position. Given its constant efforts to boost growth, we expect its top line to also see a consistent growth momentum in the upcoming quarters.

Acquisitions and partnerships form one of the main growth strategies at Aon. Its acquisitions mainly aim at expanding its health and benefits business, flood insurance solutions, and risk and insurance solutions operations. Further, strategic collaborations boost Aon’s capacity, making it one of the largest insurance brokers. In 2017 and 2018, it completed a total of 17 and eight acquisitions, respectively, to enhance its capabilities. We believe, these deals are likely to accelerate its long-term growth.

The company has also been divesting its non-core operations to streamline its business. From 2010 to 2015, it sold 27 businesses in the Risk Solutions segment and seven businesses in the HR Solutions segment that generated a substantial pre-tax gain. It pursued divestitures in the following years as well, which helped it focus on its core operations.

However, it has been issuing debts occasionally to repay outstanding debts. Long-term debt has been persistently increasing since 2014 due to an increase in commercial paper outstanding. A high level of leverage escalates the company’s borrowing costs. Interest expenses have been constantly rising as well. Higher debt might induce an elevated interest burden, thereby weighing on the company’s margin.

Its long-term growth rate is pegged at 11.90%, above its industry's metric of 10.80%, which is an upside for the company.

The Zacks Consensus Estimate for current-year earnings is pegged at $9.14, indicating a rise of 12% from the prior-year reported number on revenues of $11.25 billion, up 4.5% from the year-ago reported figure.

For 2020, the Zacks Consensus Estimate for earnings stands at $10.3 on $11.91 billion revenues, suggesting a respective 12.7% and 5.9% increase from the year-earlier reported figures.

Shares of this Zacks Rank #3 (Hold) company have rallied 25.8% in a year’stime, outperforming its industry’s growth of 23.5%.

Stocks to Consider

Investors interested in the insurance industry might look into some better-ranked stocks like eHealth, Inc. (EHTH - Free Report) , Brown & Brown, Inc. (BRO - Free Report) and Erie Indemnity Company (ERIE - Free Report) . You can see the complete list of today’s Zacks #1 Rank stocks here.

eHealth offers private health insurance exchange services to individuals, families and small businesses in the United States and China. The company currently sports a Zacks Rank #1 (Strong Buy). It delivered a beat in three of the last four quarters, the average positive surprise being 127.73%.

Brown & Brown sells insurance products in the United States, England, Canada, Bermuda and the Cayman Islands. It presently has a Zacks Rank # 2 (Buy). The company pulled off average trailing four-quarter positive surprise of 4.56%.

Erie Indemnity works as a managing attorney-in-fact for subscribers at the Erie Insurance Exchange in the United States. The company has a Zacks Rank of 2. It came up with average four-quarter positive surprise of 8.97%.

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