Unveiling Aon PLC (AON)'s Value: Is It Really Priced Right? A Comprehensive Guide
On August 28, 2023, Aon PLC (NYSE:AON) traded at $330.25, reflecting a -0.55% day's change. Over the past three months, the stock has gained 6.93%. With an Earnings Per Share (EPS) of 12.84, the question arises: Is Aon PLC fairly valued? This article will delve into a valuation analysis of Aon PLC, providing insights into its intrinsic worth.
Introduction to Aon PLC
As a leading global provider of insurance and reinsurance brokerage and human resource solutions, Aon PLC has established a strong position in the market. With its headquarters in London, the company has around 50,000 employees and operates in over 120 countries. The company's current stock price stands at $330.25, while its GF Value, a proprietary measure of intrinsic value, is $325.58. The following analysis will provide a deeper understanding of Aon PLC's value, combining financial assessment with key company details.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, Aon PLC (NYSE:AON) appears to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. With its current price of $330.25 per share, Aon PLC stock appears to be fairly valued. As Aon PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Aon PLC's Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is essential to carefully review a company's financial strength before deciding whether to buy its stock. Aon PLC has a cash-to-debt ratio of 0.71, which is worse than 71.58% of 475 companies in the Insurance industry. GuruFocus ranks the overall financial strength of Aon PLC at 5 out of 10, indicating that the company's financial strength is fair.
Profitability and Growth of Aon PLC
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Aon PLC has been profitable 10 over the past 10 years. The company had a revenue of $12.90 billion and Earnings Per Share (EPS) of $12.84 over the past twelve months. Its operating margin is 28.62%, which ranks better than 89.29% of 56 companies in the Insurance industry. GuruFocus ranks the profitability of Aon PLC at 8 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Aon PLC is 8.5%, which ranks better than 65.86% of 457 companies in the Insurance industry. The 3-year average EBITDA growth is 16.4%, which ranks better than 68.21% of 280 companies in the Insurance industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Aon PLC's ROIC is 10.12 while its WACC came in at 7.37.
Conclusion
In summary, the stock of Aon PLC (NYSE:AON) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 68.21% of 280 companies in the Insurance industry. For more detailed information about Aon PLC stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
