Yahoo Finance How to Play AON Ahead of Q1 Earnings? Will Higher Costs Shock?
Aon plc AON is scheduled to announce its first-quarter 2024 results on Apr 26, before the opening bell. Analysts anticipate a robust performance in its Commercial Risk Solutions segment, although rising costs may partially offset its results. Let’s delve deeper.
Factors Impacting AON
The company’s focus on boosting its organic growth is working its charm, as evident from its previous few quarters. In the last reported quarter alone, the leading global risk management services provider’s revenues advanced 8% year over year to $3.4 billion, which consisted of organic revenue growth of 7%, along with some favorable impacts from foreign currency translation.
We expect retention rates and new business generation to continue aiding its Commercial Risk Solutions and Reinsurance Solutions in the coming days. The well-performing construction, property and casualty businesses will likely help Commercial Risk Solutions’ U.S. operations, while growing strength in retail brokerage is expected to drive growth in international markets, especially in Asia and the Pacific.
Investors should take note of the company's global expansion efforts in its core health and benefits brokerage business, which is fueling growth in the Health Solutions unit. Additionally, the Consumer Benefit Solutions and Talent businesses are expected to contribute positively to this segment as increased consumer awareness drives demand for its services. If we take a look at its first quarter, the Zacks Consensus Estimate for Health Solutions' organic revenue growth stands at 8.4%, while our model predicts a slightly higher increase of 9%.
AON's strategic acquisitions, particularly focused on expanding its health and benefits business, flood insurance solutions, and risk and insurance solutions operations, are synergizing well with its organic growth initiatives. These acquisitions and strategic partnerships enhance Aon's capabilities and global presence, driving long-term growth and solidifying its position as one of the leading insurance brokers. The company also does not shy away from getting rid of less profitable assets to boost margins, freeing more capital for core operations.
While the above-mentioned factors are going well for AON, there are some points that investors should keep a careful eye on.
The company’s debt-heavy balance sheet is escalating its interest expenses amid a high-interest rate environment. Its interest expenses jumped 26.1% and 19.2% in 2022 and 2023, respectively. We expect the metric to further rise 8.2% year over year in the first quarter of 2024 to $120.1 million. Its long-term debt is 98.4% of total capital, significantly higher than the industry’s average of 45.9%, which is a concern.
Furthermore, despite its cost-curbing measures, operating expenses are on the rise. Last year, its total operating expenses jumped nearly 9%. For first-quarter 2024, our model predicts the metric to rise more than 8% due to higher compensation and benefits along with other general expenses, partially offsetting the profit growth potential, making an earnings beat uncertain.
YTD Price Performance
Shares of AON gained 6.6% in the year-to-date period compared with the 6.5% growth of the industry and a 4.5% increase in the S&P 500 Index.
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Q1 Earnings Preview
The Zacks Consensus Estimate for first-quarter earnings per share of $5.86 suggests a 13.4% increase from the prior-year figure of $5.17. The consensus mark jumped by 4 cents over the past week. AON beat the consensus estimate for earnings in one of the trailing four quarters and missed on the other three occasions, with the average surprise being negative 1.2%. The consensus estimate for first-quarter revenues of $4.1 billion indicates a 6.7% increase from the year-ago reported figure.
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 chances of an earnings beat. That is not the case here, as you will see below.
Earnings ESP: The company has an Earnings ESP of -0.30%. This is because the Most Accurate Estimate currently stands at $5.84 per share, lower than the Zacks Consensus Estimate of $5.86.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: With a current Zacks Rank #3, investors should take a cautious stance and observe how the stock performs in the future.
Stocks to Consider
While an earnings beat looks uncertain for AON, here are some companies from the broader Finance space that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Kemper Corporation KMPR has an Earnings ESP of +4.60% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Kemper’s bottom line for the to-be-reported quarter suggests a 185.3% year-over-year improvement to 87 cents per share. The estimate remained stable over the past week. The consensus mark for KMPR’s revenues is pegged at $1.1 billion.
Horace Mann Educators Corporation HMN has an Earnings ESP of +15.03% and is a Zacks #3 Ranked player.
The Zacks Consensus Estimate for Horace Mann’s bottom line for the to-be-reported quarter indicates a 234.8% year-over-year increase. The estimate remained stable over the past week. Furthermore, HMN beat earnings estimates in three of the past four quarters and met once, with the average surprise being 15.2%.
Willis Towers Watson Public Limited Company WTW has an Earnings ESP of +1.03% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Willis Towers’ bottom line for the to-be-reported quarter is pegged at $3.21 per share, which indicates 13% year-over-year growth. WTW beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 0.3%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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Aon plc (AON) : Free Stock Analysis Report
Willis Towers Watson Public Limited Company (WTW) : Free Stock Analysis Report
Kemper Corporation (KMPR) : Free Stock Analysis Report
Horace Mann Educators Corporation (HMN) : Free Stock Analysis Report
