AON Stock Jumps 14% in a Year: More Growth on the Horizon?
Aon plcās AON shares have jumped 14% in the past year, outperforming the 13.3% increase of the industry, thanks to strong P&C business retention and new business generation. Also, solid performance in Health Solutions, especially in EMEA, Latin America and the United Kingdom is benefiting the stock.
Headquartered in Dublin, Ireland, Aon provides risk management services, insurance and reinsurance brokerage, human resource consulting and outsourcing services worldwide. It has a market cap of $66.8 billion and operates in more than 120 countries.
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Can It Retain Momentum?
The answer is yes, thanks to rising estimates, growing operating strength and its profitability-increasing initiatives.
The Zacks Consensus Estimate for 2023 earnings per share currently stands at $14.26, signaling a 6.5% year-over-year increase. It has witnessed one upward estimate revision in the past month against none in the opposite direction. AON beat earnings estimates in two of the last four quarters and missed on the other occasions, with an average surprise of 0.5%. This is depicted in the graph below.
The Zacks Consensus Estimate for 2023 revenues is pegged at $13.3 billion, indicating a 6.2% year-over-year rise. Over the long run, AON expects to witness mid-single-digit or more organic growth. This Zacks Rank #3 (Hold) company is poised for long-term growth on the back core business strengthening initiatives, inorganic growth strategies and improving operations in different regions.
It is expected to witness improvement in performance in most of its revenue lines in the coming days. Our estimate for 2023 Commercial Risk Solutions revenues indicates 4.5% year-over-year growth, on the back of strong operations in different geographical locations, mostly in Asia and Pacific regions. We expect thereās more room for growth in Commercial Risk than it has witnessed so far.
Similarly, its Reinsurance Solutions unit is expected to grow from Strategy and Technology Group performance. We expect the unitās 2023 revenues to grow 10.5% year over year. Continued growth in EMEA, Latin America and the United Kingdom is expected to boost its Health Solutions revenues. Our estimate for the unitās 2023 revenues indicates a more than 6% increase from a year ago. The companyās focus on these two units is reflected in its talent investments.
Management does not shy away from getting rid of less profitable assets to increase profitability. Historically speaking, in the 2011-2021 period, it completed 123 divestments for around $5.7 billion. We expect the companyās business streamlining moves to continue, allowing it to focus on more profitable operations and generate higher returns. AONās trailing 12-month return on capital of 29.1% compares favorably with the industry average of 11.8%.
Risks
Despite the upside potential, there are a few factors that can hold back AONās growth. Lack of M&A and IPO activities, which provides insurance contracts from non-recurring businesses, are expected to keep its growth potential under check in the second half of the year. Also, its debt-laden balance sheet induces a rise in interest expenses. In the first half of 2023, interest expenses escalated 25% year over year. Nevertheless, we believe that a systematic and strategic plan of action will drive its long-term growth.
Key Picks in Finance
Some better-ranked players in the broader Finance space include Aegon N.V. AEG, Trupanion, Inc. TRUP and Employers Holdings, Inc. EIG, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of todayās Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Aegonās current year earnings indicates 42.1% year-over-year growth. In the past 30 days, AEG has witnessed one upward estimate revision against none in the opposite direction.
The Zacks Consensus Estimate for Trupanionās current year earnings has improved 9.2% in the past 60 days. It has witnessed four upward estimate revisions during this time against no movement in the opposite direction. Also, the consensus mark for TRUPās revenues in 2023 suggests 19.5% year-over-year growth.
The consensus mark for Employers Holdingsā current year earnings indicates a 14.3% year-over-year increase. It has witnessed one upward estimate revision in the past 60 days against no downward movement. Furthermore, the consensus estimate for EIGās revenues in 2023 suggests 20.5% year-over-year growth.
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