Can AON's Q4 Earnings Beat on Commercial Risk Performance?
Aon plc AON is set to continue its earnings beat streak in the fourth quarter of 2022, the results of which are expected to be released on Feb 3, before the opening bell.
In the last reported quarter, the leading insurance provider recorded adjusted earnings per share of $2.02, beating the Zacks Consensus Estimate by a penny, due to lower operating expenses, and strong retention and business generation, supported by solid contributions from Reinsurance Solutions. Growth in core P&C also benefited the results. However, the positives were partially offset by the frail performance of Wealth Solutions.
Now, let us see how things have shaped up prior to the fourth-quarter earnings announcement.
The Trend in Estimate Revision
The Zacks Consensus Estimate for fourth-quarter earnings per share of $3.67 has witnessed two upward estimate revisions in the past 30 days against one movement in the opposite direction. The estimated figure, however, suggests a decrease of 1.1% from the prior-year reported number. Our estimate for fourth-quarter earnings suggests a 3.6% year-over-year decline. AON beat the consensus estimate in three of the prior four quarters and missed once, the average surprise being 2.8%. This is depicted in the graph below:
Aon plc Price and EPS Surprise
Aon plc price-eps-surprise | Aon plc Quote
Both the Zacks Consensus Estimate and our estimate for fourth-quarter revenues of $3.1 billion indicate a 1.3% increase from the year-ago reported figure.
What the Quantitative Model Suggests
Our proven model conclusively predicts 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 chances of an earnings beat.
Earnings ESP: Earnings ESP for the company is +1.52%. The Most Accurate Estimate is pegged at $3.73 per share, higher than the Zacks Consensus Estimate of $3.67. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: AON currently holds a Zacks Rank #2.
Factors to Note
Commercial Risk Solutions’ performance is likely to have gained from business generation, robust retention and management of the renewal book portfolio. Increased travel-related spending is expected to have aided the Data & Analytics Services business, which has become part of Commercial Risk Solutions.
The Zacks Consensus Estimate for the Commercial Risk Solutions line’s revenues is pegged at $1,869 million, suggesting an increase from the prior-year reported figure of $1,847 million. Our estimate for the metric is pegged at $1,865.5 million for the fourth quarter.
The Zacks Consensus Estimate for the Health Solutions line’s fourth-quarter revenues is pegged at $652 million, remaining flat from the year-ago period’s actuals. Growth in the more discretionary portions of the business, led by an increase in project-related work and strength in voluntary benefits, is likely to have aided the segment.
The consensus mark for Reinsurance Solutions’ revenues is pegged at $232 million, indicating an increase from $222 million a year ago. Our estimate for the fourth quarter suggests a 9% year-over-year increase. It is likely to have witnessed growth in the to-be-reported quarter on the back of consistent business generation and growth in capital market transactions. All these factors are likely to have positioned the company for an earnings beat.
However, the consensus mark for Wealth Solution’s revenues in the fourth quarter indicates a 5.5% year-over-year decline, while our estimate predicts a 7% fall. Unfavorable effects of currency exchange are likely to have impacted the company’s margins.
Also, escalating expenses due to substantial investments in the priority areas for long-term growth and an increase in certain discretionary expenses are likely to have affected bottom-line growth, resulting in a year-over-year decline.
Other Stocks That Warrant a Look
Here are some other companies from the broader finance space that you may also want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:
Ares Capital Corporation ARCC has an Earnings ESP of +8.29% and is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ares Capital’s bottom line for the to-be-reported quarter is pegged at 56 cents per share, implying a 7.7% improvement from the year-ago figure. ARCC beat earnings estimates in two of the past four quarters, met once and missed on the other occasion, with an average surprise of 3%.
Manulife Financial Corporation MFC has an Earnings ESP of +2.20% and a Zacks Rank of 2.
The Zacks Consensus Estimate for Manulife Financial’s bottom line for the to-be-reported quarter is pegged at 61 cents per share, which witnessed two upward estimate revisions in the past 30 days against no downward movement. MFC beat earnings estimates in two of the past four quarters and missed twice.
The Hartford Financial Services Group, Inc. HIG has an Earnings ESP of +0.18% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Hartford Financial’s bottom line for the to-be-reported quarter is pegged at $1.86 per share, which improved 1.1% in the past 60 days. HIG beat earnings estimates in all the past four quarters, with an average surprise of 23.1%.
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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
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