It has been about a month since the last earnings report for Aon (AON Quick QuoteAON - Free Report) . Shares have added about 14.1% 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 drivers.

Aon's Earnings Miss Estimates in Q1, Increase Y/Y

Aon's first-quarter 2020 operating earnings of $3.68 per share missed the Zacks Consensus Estimate by 0.5%. However, the metric improved 11.2% year over year on the back of higher revenues and strong segmental contributions.

Total revenues inched up 2.4% to $3.2 billion including 5% organic revenue growth. This can be attributed to solid new business generation in Reinsurance Solutions and strong management of the renewal book in Health Solutions and Commercial Risk Solutions.

Operating margin grew 440 basis points (bps) to 32.1% and operating margin, adjusted for certain items, expanded 200 basis points to 35.7%.
Total operating expenses were down 4% to $2.2 billion, primarily owing to decrease in restructuring charges, favorable impact from foreign currency translation, and the preemptive reduction and deferral of certain discretionary expenses related to COVID-19.

The adjusted effective tax rate on a comparable basis for the first quarter was 19.3% compared with 16.9% in the prior-year period. This was due to certain changes in geographical distribution of income and a net favourable impact from discrete items.

Organic Revenue Catalysts

Commercial Risk Solutions: Organic revenues rose 4% on the back of strong growth across every major geography, highlighted by double-digit growth in Canada and Latin America, mainly on the back of solid retention and management of the renewal book portfolio. The segment witnessed a 3% increase in total revenues year over year to $1.1 billion.

Reinsurance Solutions: Organic revenues improved 9%, driven by growth in facultative placements and new business generation. Moreover, total revenues for the segment increased 8% year over year to $848 million.
Retirement Solutions: Organic revenues were flat year over year. The results reflect a solid rise in investments, consisting of double-digit growth in delegated investment management and growth in Human Capital, partly offset by a decline in core retirement due to coronavirus outbreak. However, total revenues dipped 5% year over year to $397 million.

Health Solutions: Organic revenues were up 5% year over year, led by solid international growth in health and benefits brokerage, especially boosted by a robust uptrend in Latin America, Asia and EMEA. Results reflect strength in active exchange business as well. Revenues from this segment rose 3% year over year to $502 million.

Data & Analytic Services: Organic revenues inched up 1% year over year owing to international prosperity in Affinity business, particularly in the United States. Results also reflect pressure in some discretionary parts of the business due to COVID-19. Revenues slid 1% year over year.

Financial Position

At the end of the quarter, the company’s cash flow from operations soared 357% to $338 million. Moreover, free cash flow surged to $279 million from $17 million in the prior-year quarter, banking on increase in cash flow from operations.

The company exited the first quarter with total assets worth $30.2 billion, up 3% from the level on Dec 31, 2019.

As of Mar 31, 2020, long-term debt stands at $6.2 billion, declining 6% from the level at 2019 end.

Share Repurchase Update

The company bought back 2.2 million Class A Ordinary shares for nearly $460 million in the quarter under review. As of Mar 31, 2020, it had stock worth $1.6 billion left under its share repurchase program.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -6.06% due to these changes.

VGM Scores

At this time, Aon has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Aon has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.