On Wednesday, Evercore ISI analyst upgraded Aon Corp (NYSE:AON) stock from In Line to Outperform, raising the price target to $420 from $407. The upgrade reflects the analyst's optimism about the company's organic growth prospects and potential for re-rating after two years of relative underperformance.
According to InvestingPro data, Aon's stock, currently trading at $348.44, shows an RSI indicating oversold territory, suggesting potential upside opportunity. The company maintains a GOOD Financial Health Score of 2.64, supported by strong profitability metrics.
The analyst believes that Aon's growth could be positively influenced by increased merger and acquisition (M&A) activity, improved retention rates, and contributions from new hires. The expectation is that these factors, along with bolt-on acquisitions, could lead to higher organic growth in the coming years, particularly within Aon's Commercial Risk Solutions (CRS).
Current consensus estimates for Aon's organic growth in CRS for 2025 are around 5%, which the analyst suggests may be too conservative. Comparatively, competitors such as Marsh & McLennan Companies (Marsh) and Willis Towers Watson (NASDAQ:WTW) are expected to see organic growth rates of 6% and 7%, respectively. The analyst points out that Aon's exposure to large account business, which is typically fee-based, could mitigate the impact of rate pressures in that segment.
Aon's valuation is seen as reasonable, trading in line with its long-term average relative price-to-earnings (P/E) ratio but at a discount compared to Marsh & McLennan Companies (MMC). The analyst contends that Aon's focus on hiring and a bolt-on M&A strategy could drive a higher multiple in the future. For 2026 estimates, Aon is projected to trade at a 21x P/E or 20x price to free cash flow (P/FCF) multiple, justifying the new $420 price target.
The report does acknowledge risks, including a potential increase in the tax rate for 2025, estimated at 19.5%, which could pose a near-term challenge. However, the analyst maintains that despite this, Aon's stock still holds upside potential relative to consensus estimates.
The company's large account property exposure, which faces pricing pressure, is also seen as less of a concern due to the fee-based nature of the business and the potential for greater value capture as the market moderates.
In other recent news, Aon Corp reported robust third-quarter earnings for 2024, with a 7% organic revenue growth and a significant 26% total revenue increase. These positive results were largely attributed to the successful integration of NFP, a leading insurance broker and consultant, which is expected to generate $175 million in revenue synergies and $60 million in operational efficiencies by 2026.
In addition to the strong earnings, Aon also made strategic moves to expand its presence in the UK and Ireland with the acquisition of Griffiths & Armour, a UK-based insurance broker. This acquisition, expected to close in the first quarter of 2025, will further bolster Aon's business operations.
Analysts have also been closely monitoring Aon's performance. BMO Capital Markets raised the price target on Aon shares to $380, citing a more positive earnings trajectory for the coming years, while Goldman Sachs maintained a Neutral stance on Aon, raising its price target to $390 based on the company's organic growth prospects. On the other hand, RBC Capital adjusted its stock price target for Aon, reducing it from $390 to $365, while maintaining a Sector Perform rating.
These are among the recent developments that have shaped Aon's business trajectory.
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