Aon's Inorganic Growth Impresses, Rising Debt Level A Drag

Aon plc’s (NYSE:AON) robust inorganic growth has boosted its foothold in the insurance brokerage market. The company’s acquisitions mainly aim at expanding the health and benefits business as well as risk and insurance solutions operations. Strategic alliances have also bolstered Aon’s scale of business. The acquisition of Admix and the international benefit brokerage portfolio of the Mayfair group are worth a mention here. In September 2017, the company enhanced its investment capabilities with the buyout of The Townsend Group. These initiatives have significantly paved the way for Aon’s long-term growth.

The company’s financial health impresses. Consistent generation of operating cash flow has enabled Aon to deploy capital in an effective manner. Also, it has been enhancing shareholders’ value through dividend payments and share repurchases. Year to date, the company’s shares have gained 24%, outperforming the industry’s rally of 21%. This reflects shareholders’ confidence in the stock.

Along with adding businesses, the company continues to divest non-core operations to streamline its core operations. The sale of its benefits administration and HR BPO platform to Blackstone (NYSE:BX) Group in the first half of 2017 not only reduced its non-core expenses but also generated higher return on equity.

Aon’s strong expense management program is impressive. Its operating expenses started declining since 2015. The divestment of non-core HR business is likely to reduce Aon’s overall costs in the coming quarters, in turn, propelling bottom-line growth.

However, the company’s operations suffer from a high debt level. Consequently, interest expenses started rising since 2013. This is expected to weigh on Aon’s profitability.

Moreover, Aon’s world-wide operations have been facing unfavorable impact of foreign exchange volatility on its earnings per share and revenues since 2012. This may lead to earnings volatility, in the coming quarters.

Zacks Rank & Stocks to Consider

Aon presently carries a Zacks Rank #3 (Hold).

Investors interested in stocks from the insurance space can check out Radian Group Inc. (NYSE:RDN) , MetLife, Inc. (NYSE:MET) and Prudential Financial, Inc. (NYSE:PRU) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Radian Group offers mortgage and real estate products and services in the United States. The company delivered positive surprises in three of the last four quarters with an average beat of 4.52%.

MetLife offers life insurance, annuities, employee benefits and asset management products in the United States, Japan, Latin America, Asia, Europe and the Middle East. The company pulled off positive surprises in each of the last four quarters with an average beat of 9.60%.

Prudential Financial provides insurance, investment management and other financial products and services in the United States and internationally. The company came up with positive surprises in three of the last four quarters with an average beat of 0.16%.

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