Aon Reaches 52-Week High - Analyst Blog

On May 22, 2014, Aon plc. AON achieved a new 52-week high of $88.25. The rally was driven by the strong first quarter 2014 earnings and capital deployment initiatives.

Aon's solid first-quarter 2014 results comprised a 9.40% positive earnings surprise. Earnings also increased 15% year over year driven by strong operating performance by the Risk Solutions business and efficient capital management. Notably, this risk management and insurance provider has delivered positive earnings surprises in all of the last four quarters with an average beat of 4.90%.

Following Aon's earnings release on April 25, 2014, its share price rose 3.9%. The one-year return of the stock was 32.78%, much above the S&P 500's return of 13.49%.

During the first quarter, Aon's top line increased 1% year over year on the back of higher organic revenues. To strengthen its business, Aon allied with a financial guidance software company, HelloWallet, to help employers assist the financial security of their workers.

On expectations that 76% of the U.S. companies would expand wellness benefits beyond retirement in 2014, we believe that this alliance will help Aon gain more clients and pave the way for more revenues.

Moreover, Aon's affinity business, Healthcare Providers Service Organization (HPSO), in association with CNA Financial Corp. CNA has analyzed and released a risk study for counselors in Mar 2014. We expect this endeavor to help Aon improve counselors' risk management and thereby, gain more clients in this arena.

Aon's capital deployment initiatives have been impressive. The company deployed $600 million toward share repurchases in the first quarter and hiked its annual dividend by 43% in Apr 2014. Share repurchases and an increase in dividend are expected to help the company retain investor confidence on the stock going forward.

The capital deployments and growth initiatives keeps us optimistic about the stock's performance. The full-year 2014 Zacks Consensus Estimate increased 4.6% to $5.43 since the company reported its first-quarter results, as most of the estimates moved north.

During the same period, the estimates also pulled up the Zacks Consensus Estimate for full-year 2015 by 3.3% to $5.99 per share. The estimates translate to a year-over-year improvement of 11.2% and 10.2% for 2014 and 2015, respectively.

Aon currently caries a Zacks Rank #2 (Buy). Other players in the same sector, which look attractive at current levels, include Blue Capital Reinsurance Holdings Ltd. BCRH and Erie Indemnity Co. ERIE. Both these stocks have the same Zacks Rank as Aon.