Aon plc AON has been in investors’ good books owing to cost-curbing initiatives and inorganic growth strategies.
Over the past seven days, the company has witnessed its 2021 earnings estimate move 0.1% north, reflecting investors’ optimism on the stock.
This bullish sentiment is retained by the company’s continued beat streak in three of the last four quarters (missing the mark in one), the average earnings surprise being 1.1%. The upside further underlines its operational excellence.
Its return-on-equity (ROE) reflects growth potential. The company’s trailing 12-month ROE of 65% compares favorably with the industry average of 27.6%, reflecting its efficiency in utilizing its shareholders’ funds.
Being a leading insurance brokerage company, Aon always made buyouts to boost its portfolio like many of its peers. Its acquisitions mainly aim at expanding its health and benefits business, flood insurance solutions, and risk and insurance solution operations. Strategic collaborations also expand Aon’s capacity and make it one of the largest insurance brokers. Notably, the company completed six acquisitions during the nine months ending Sep 30, 2020. It is also on course to purchase Wills Towers Watson, which is expected to close in the first half of 2021.
Other than strategic takeovers, Aon has been selling off its non-core operations to streamline its business and focus more on its core activities. This, in turn, will allow the company to concentrate on more profitable operations, thereby generating higher return on equity.
The company took solid measures to deliver savings. Aon spent $1.48 billion on restructuring and related separation costs, right from the inception of its reorganizing plan through Jun 30, 2019. In the first nine months of 2020, the company’s operating expenses declined 7% year over year. Costs for the remainder of the year are expected to be consistent with the underlying expenses in 2019 excluding adjusted items.
Notably, Aon resumed its share repurchase plan in the third quarter despite the prevalent economic situation. On its last earnings call, management confirmed that it will continue to repurchase shares while maintaining higher-than-normal level of cash for the near future. Its board of directors recently authorized a new share buyback program worth $5 billion in a bid to return more value to its shareholders. Such initiatives reflect the operational and financial strength of the company and this should instill investors’ confidence in the stock.
The Zacks Consensus Estimate for current-year earnings is pegged at $9.66, indicating a rise of 5.3% from the prior-year reported number.
Shares of this presently Zacks Rank #3 (Hold) company have lost 1.8% in a year’s time, wider than its industry’s decline of 0.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other companies in the same space, such as Arthur J. Gallagher & Co. AJG, Willis Towers Watson Public Limited Company WLTW and Brown & Brown, Inc. BRO have gained 20.4%, 0.8% and 11.8%, respectively, in the same time frame.
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