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What's in the Cards for Aon (AON) This Earnings Season?

Zacks Equity Research

Aon plc AON is set to report second-quarter 2019 results on Jul 26, before the opening bell. Although in the last reported quarter, the company's earnings came in line with the Zacks Consensus Estimate, the same rose 11.4% year over year on the back of solid revenue growth.

The insurance broker flaunts an impressive surprise history, having delivered an earnings beat in all the trailing four quarters, the average being 3.21%.

Factors to Consider Ahead of the Second-Quarter Release

For the second quarter of 2019, Aon is likely to see an uptick across all its segments, namely Commercial Risk Solutions, Data & Analytics, Health Solutions, Retirement Solutions and Reinsurance Solutions. The Zacks Consensus Estimate for the bottom line stands at $1.88, implying 9.9% growth from the prior-year reported figure.

The segments are expected to contribute strongly to the company’s revenue base. Its constant efforts for portfolio expansion and productivity improvement measures are expected to boost its revenue stream.

The Zacks Consensus Estimate for second-quarter revenues from the company’s Commercial Risk Solutions and Data & Analytics indicates an increase of 5.1% and 6.5%, respectively, from the year-ago reported numbers. Notably, the consensus mark for revenues from Health Solutions, Retirement Solutions and Reinsurance Solutions suggests a rise of 5.5%, 2.6% and 4.7%, respectively, from the year-earlier reported numbers.

The Zacks Consensus Estimate for second-quarter total revenues is pegged at nearly $2.7 billion, suggesting 4.8% improvement from the year-ago reported figure.

In order to enhance shareholder value, Aon already hiked its annual cash dividend by 10% in the quarter under review, paid on May 15, 2019 to shareholders of record on May 1, 2019.

However, the company might have incurred high costs in the quarter to be reported due to investments.

The company is likely to endure high financial leverage in the to-be-reported quarter as debts have been piling up since 2014 due to an increase in the commercial paper outstanding. Moreover, interest expenses could possibly escalate, further weighing down the margins.

What the Quantitative Model States

Our proven model does not conclusively indicate that Aon is likely to beat on earnings in the quarter to be reported. This is because a stock needs to have the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen, which is not the case here.

Earnings ESP: Aon has an Earnings ESP of -0.53%. This is because both the Most Accurate Estimate is pegged at 1.87%, lower than the Zacks Consensus Estimate of 1.88%. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Aon plc Price and EPS Surprise

Aon plc Price and EPS Surprise
Aon plc Price and EPS Surprise

Aon plc price-eps-surprise | Aon plc Quote

Zacks Rank: Aon currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s negative ESP in the combination leaves surprise prediction inconclusive for the stock this earnings season.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.  

Stocks to Consider

Some stocks worth considering from the finance sector with the perfect mix of elements to surpass estimates in the next releases are as follows:

The Hartford Financial Services Group, Inc. HIG is set to report second-quarter earnings on Aug 1. The stock is a #3 Ranked player and has an Earnings ESP of +0.63%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lincoln National Corporation LNC has an Earnings ESP of +0.52%. This Zacks #3 Ranked player is scheduled to release second-quarter earnings on Jul 31.

Alleghany Corporation Y is slated to announce second-quarter earnings on Aug 6. The stock has an Earnings ESP of +1.74% and a Zacks Rank of 3.

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