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

Zacks Equity Research
·5 min read

Aon plc AON is slated to report third-quarter 2020 results on Oct 30, before the opening bell.

Q3 Estimates   

The Zacks Consensus Estimate for Aon’s third-quarter earnings is pegged at $1.51 per share, indicating an improvement of 4.1% from the prior-year quarter.

However, the consensus mark for revenues stands at $2.3 billion, suggesting a decline of 1.8% from the year-ago reported figure.

Factors to Note

The company’s segments — Commercial Risk Solutions, Data & Analytic Services, Health Solutions and Retirement Solutions — are likely to display a weak performance. Consequently, softer segmental performances might have dented the company’s top line in the to-be-reported quarter.

The Zacks Consensus Estimate for the Commercial Risk Solutions segment’s third-quarter revenues are pegged at $1.04 billion, suggesting a decline of 1% from the prior-year quarter. The segment’s third-quarter results are likely to reflect pressure on the more discretionary parts of its business, which include transaction liability, construction and project work. However, strong retention rates and a robust property & casualty (P&C) business may have benefited the segment.

Reduced travel and events practice on account of the COVID-19 pandemic might have impacted the Data & Analytics Services segment. The consensus mark for the segment’s revenues stands at $260 million, indicating a decline of 4.1% from the year-ago reported figure.

Moreover, the Zacks Consensus Estimate for the Health Solutions segment’s third-quarter revenues is pegged at $253 million, suggesting a slump of 9.3% from the year-ago reported figure. Lower employment level, due to the pandemic, is likely to have put pressure on the core and more discretionary parts of this business.

Also, pressure on the more discretionary parts of the company’s retirement business, which specifically includes human capital, may have impacted the Retirement Solutions segment in the quarter to be reported. The Zacks Consensus Estimate for the segment’s revenues stands at $461 million, indicating a fall of 4.8% from the year-ago reported figure. Nevertheless, substantial investments made to enhance the retirement business might have offset the pressure on this segment.

The Reinsurance Solutions segment is likely to have witnessed growth in the to-be-reported quarter. The segment might have benefited from new business generation and improved facultative placements. The consensus estimate for the Reinsurance Solutions segment’s third-quarter revenues stands at $306 million, indicating an improvement of 5.2% from the prior-year quarter.

On its last earnings call, the company expected an unfavourable impact of 2 cents per share on third-quarter operating income. Despite adverse forex fluctuation, the company is likely to have gained from a favorable operational margin, which in turn is likely to have generated free cash flows for Aon.

Finally, the company might have incurred higher costs in the to-be-reported quarter on account of substantial investments made in priority areas and deferred expenses. Nevertheless, lower restructuring charges are likely to have partly mitigated elevated costs.

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

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Aon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Earnings ESP: Aon has an Earnings ESP of -0.31%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aon carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Highlights of Q2 Earnings and Surprise History

Aon’s second-quarter 2020 operating earnings of $1.96 per share surpassed the Zacks Consensus Estimate by 2.1%. Moreover, the metric improved 5% year over year on the back of reduced operating expenses, partially offset by lower revenues. However, total revenues in the second quarter fell 4% year over year to $2.5 billion, including 1% decline in organic revenues.

The company has beat estimates in three of the trailing four quarters, while missing the same once. It has a trailing four-quarter earnings surprise of 1.14%, on average.

Stocks to Consider

Some stocks worth considering from the insurance space with a perfect mix of elements to surpass estimates in the upcoming quarterly releases are as follows:

Marsh & McLennan Companies, Inc. MMC has an Earnings ESP of +7.03% and a Zacks Rank #3. The company is scheduled to release third-quarter 2020 earnings on Oct 29.

MGIC Investment Corporation MTG has an Earnings ESP of +14.90% and a Zacks Rank of 3, at present. The company is scheduled to release third-quarter 2020 earnings on Nov 4.

Radian Group Inc. RDN has an Earnings ESP of +5.44% and a Zacks Rank #3. The company is scheduled to release third-quarter 2020 earnings on Nov 4.

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