AON Stock Rises 42.6% in Six Months: Get It or Let It Go?

Aon plc AON is strengthening its analytics capabilities while achieving growth through robust client retention and consistent new business acquisitions. The company has seen its shares rise 41.8% in the past six months, outpacing the industry’s 29.7% growth. The company also outperformed the S&P 500’s return of 14.2% during this period.AON’s Six-Month Price PerformanceImage Source: Zacks Investment ResearchThe stock is trading above its 50-day and 200-day moving averages, indicating solid upward momentum. Currently trading at $393.31, AON is just 0.5% shy from its 52-week high of $395.33. This proximity highlights investor confidence and market optimism about the company’s prospects.Is this the right time to buy AON shares for potential upside? Let's go through the stock’s growth drivers.Key DriversImproving product offerings and expanding its product portfolio helps the company retain its client base and generate new businesses. For example, its recent launch of the newly integrated Radford McLagan Compensation Database will expand the analytics capabilities for its existing Human Capital clients. This aligns with Aon's broader strategy of leveraging data-driven insights and innovative tools, as evidenced by solutions like the CyQu tool for cyber risk and the Health Efficiency Analyzer. Such initiatives are expected to fuel ongoing organic revenue growth and strengthen client relationships.Prudent acquisitions and partnerships form one of the company's main growth strategies. Over the past few years, the company has sealed many buyouts to scale its business and expand product offerings. The company closed the NFP acquisition, a privately held middle-market property and casualty broker, in April 2024. It is expected to boost AON’s top line, driven primarily by incremental M&A.The company continues to streamline operations, eliminating less profitable assets and focusing more on improving efficiencies. Its Aon United restructuring program will support its margin expansionary targets in the long run. The company is on track to achieve $100 million savings in 2024 and $350 million run-rate savings by 2026. However, in the short run, charges from the program might limit profit growth.The company’s cash-generating abilities help it make shareholder-friendly moves. In 2023, the company bought back shares worth $800 million. It repurchased shares worth $800 million in the first nine months of 2024. It had around $2.5 billion of authorization left under its share repurchase program as of Sept.30, 2024. It expects to achieve double-digit three-year compound annual growth rate (CAGR) from 2023-2026.AON’s Favorable ValuationFrom a valuation perspective, AON appears relatively cheap. The company is trading at a forward 12-month price-to-earnings multiple of 22.8X, lower than the industry average of 22.95X.Image Source: Zacks Investment ResearchEstimates for AONThe Zacks Consensus Estimate for 2024 adjusted earnings for AON is currently pegged at $15.42 per share, indicating 9.1% year-over-year growth. The consensus mark for 2025 earnings suggests a further 13% jump. The consensus estimate for 2024 and 2025 revenues indicates 17.7% and 11.2% year-over-year growth, respectively.Key Concerns for AONThere are a few factors that investors should keep an eye on.The company’s long-term debt is 72.9% of total capital, significantly higher than the industry’s average of 49%. AON exited the third quarter with cash and cash equivalents of $1.1 billion, significantly lower than long-term debt of $17.1 billion. However, the company plans to pay down $2.1 billion in debt in 2024 and reduce leverage to 2.8-3 times in the fourth quarter of 2025.Its trailing 12-month return on invested capital stands at 7.9%, lagging behind the industry average of 9.6%. This indicates that the company is less efficient at generating returns from its invested capital compared to its peers, signaling weaker capital utilization.ConclusionAon’s focus on enhancing its product portfolio, leveraging analytics, and strategic acquisitions positions it for strong organic growth and improved client retention. Its shareholder-friendly initiatives and restructuring efforts further support long-term value creation. However, the high debt burden and below-average capital returns remain areas of concern.Currently, AON carries a Zacks Rank #3 (Hold).Stocks to ConsiderSome better-ranked stocks in the broader Finance space are Kemper Corporation KMPR, CNO Financial Group, Inc. CNO and Primerica, Inc. PRI. Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Kemper’s earnings surpassed the Zacks Consensus Estimate in two of the last four quarters, met once and missed the other time, with an average surprise of 10.5%. The Zacks Consensus Estimate for KMPR’s 2024 earnings indicates an 824.3% year-over-year rise. Its revenues for 2024 are projected to be $4.6 billion. The consensus mark for KMPR’s earnings has moved 6.8% north in the past 30 days.CNO Financial’s earnings surpassed estimates in three of the last four quarters and missed once, with an average surprise of 24.5%. The Zacks Consensus Estimate for CNO’s 2024 earnings indicates a 20.7% year-over-year rise. Its revenues are projected to be $3.7 billion in 2024. The consensus mark for CNO’s 2024 earnings has moved 8.7% north in the past 30 days.Primerica’s earnings outpaced estimates in two of the trailing four quarters and missed twice, the average surprise being 4.9%. The Zacks Consensus Estimate for PRI’s 2024 earnings is pegged at $19.32 per share. Meanwhile, revenues are projected to be $3 billion in 2024. The consensus mark for PRI’s 2024 earnings has moved up 1% in the past 30 days. Free Today: Profiting from The Future’s Brightest Energy SourceThe demand for electricity is growing exponentially. At the same time, we’re working to reduce our dependence on fossil fuels like oil and natural gas. Nuclear energy is an ideal replacement.Leaders from the US and 21 other countries recently committed to TRIPLING the world’s nuclear energy capacities. 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