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Will Rising Expenses Play Spoilsport for AON's Q2 Earnings?
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Aon plc (AON - Free Report) is set to report its second-quarter 2024 results on Jul 26, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $3.09 per share, implying an increase of 12% from the year-ago reported number. The estimate was revised downward by two analysts in the past month against one movement in the opposite direction, resulting in a decrease of 3 cents from $3.12 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $3.7 billion, suggesting a 17.2% rise from the year-ago actuals.
Image Source: Zacks Investment Research
AON missed the consensus estimate for earnings in three of the trailing four quarters and beat once, with the average surprise being negative 1.5%, as you can see below.
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 +0.44%. This is because the Most Accurate Estimate currently stands at $3.11 per share, higher than the Zacks Consensus Estimate of $3.09.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: But AON currently carries a Zacks Rank #4 (Sell).
Now, let’s see how things have shaped up before the second-quarter earnings announcement.
Q2 Factors to Note
The performance of Commercial Risk Solutions in the second quarter is likely to have benefited from new business growth, solid retention rates and effective management of the renewal book portfolio. Additionally, strong growth in various regions, including the Pacific and EMEA, is expected to have contributed positively to their results.
The Zacks Consensus Estimate for the Commercial Risk Solutions line’s revenues indicates 10.4% growth from $1.8 billion a year ago, whereas our model predicts a 10.9% increase. We expect the unit to witness 4% organic revenue growth in the quarter under discussion.
The consensus mark for the Health Solutions line’s second-quarter revenues suggests 40.8% growth from the year-ago level. The segment is likely to have been supported by an increase in core health and benefits brokerage. Additionally, the growing strength in Consumer Benefit Solutions and the NFP acquisition are expected to have aided its performance in the quarter under review.
The Zacks Consensus Estimate for Reinsurance Solutions' revenues indicates growth of more than 6% compared with the $607 million from a year ago, while our model forecasts a 5% increase. Strong Strategy and Technology Group’s performance, new business generation and solid retention are expected to have benefited the unit.
The consensus estimate for second-quarter revenues in the Wealth Solutions segment suggests an almost 22% increase from the previous year, whereas our model foresees a 24% rise. The unit is likely to have been supported by heightened demand for advisory services, project-related activities and retirement growth during the quarter under review.
While the factors mentioned above are expected to contribute to the company's year-over-year growth, increased expenses from significant investments in priority areas for long-term growth, coupled with an uptick in certain discretionary and other costs, may have affected the margins. This is likely to have partially offset the upside, making an earnings beat uncertain.
Our model suggests the total operating costs in the second quarter to have increased nearly 20%, primarily attributed to increased expenses related to higher compensation and benefits. Specifically, the estimate for other general expenses is set at nearly $392 million, while compensation and benefits cost is pegged at almost $2 billion.
Price Performance
AON's stock has gained 2.8% in the year-to-date period compared with the industry’s growth of 14.4%. Additionally, the stock underperformed the S&P 500 Index, which rallied 17.1% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
What Should Investors Do Now?
Challenges in Aon's U.S. retail brokerage, driven by lower net new business and other factors, had already impacted its first-quarterresults, raising concerns about future performance. Its underperformance this year, inconsistent earnings surprise history, significant debt burden, rising expenses and risks related to international operations, such as those in Ukraine, are affecting investor confidence in the stock. Given these headwinds, Aon appears to be a risky investment in the short run. Exiting the stock may be a prudent decision for investors looking to mitigate potential risks.
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:
The Zacks Consensus Estimate for Palomar’s bottom line for the to-be-reported quarter is pegged at $1.11 per share, which remained stable over the past week. The estimate signals 29.1% year-over-year growth. The consensus estimate for PLMR’s revenues is pegged at $120.4 million, indicating a 34.9% increase from a year ago.
Oscar Health, Inc. (OSCR - Free Report) has an Earnings ESP of +3.23% and is a Zacks #2 Ranked player.
The Zacks Consensus Estimate for Oscar Health’s bottom line for the to-be-reported quarter is pegged at 16 cents per share, which signals a massive improvement from year-ago loss of 7 cents. The consensus estimate for OSCR’s revenues is pegged at $2.2 billion, a 43.4% jump from a year ago. It beat earnings estimates in each of the past four quarters, with an average surprise of 62.3%.
Prudential Financial, Inc. (PRU - Free Report) has an Earnings ESP of +0.11% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Prudential's bottom line for the to-be-reported quarter is pegged at $3.43 per share, suggesting a 16.7% year-over-year increase. The estimate remained stable over the past week. The consensus estimate for PRU’s revenues is pegged at $13.8 billion, predicting a 9% increase from the year-ago period.
Image: Bigstock
Will Rising Expenses Play Spoilsport for AON's Q2 Earnings?
Aon plc (AON - Free Report) is set to report its second-quarter 2024 results on Jul 26, before the opening bell.
The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $3.09 per share, implying an increase of 12% from the year-ago reported number. The estimate was revised downward by two analysts in the past month against one movement in the opposite direction, resulting in a decrease of 3 cents from $3.12 per share. The Zacks Consensus Estimate for second-quarter revenues is currently pegged at almost $3.7 billion, suggesting a 17.2% rise from the year-ago actuals.
AON missed the consensus estimate for earnings in three of the trailing four quarters and beat once, with the average surprise being negative 1.5%, as you can see below.
Aon plc Price and EPS Surprise
Aon plc price-eps-surprise | Aon plc Quote
Q2 Earnings Whispers
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 +0.44%. This is because the Most Accurate Estimate currently stands at $3.11 per share, higher than the Zacks Consensus Estimate of $3.09.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: But AON currently carries a Zacks Rank #4 (Sell).
Now, let’s see how things have shaped up before the second-quarter earnings announcement.
Q2 Factors to Note
The performance of Commercial Risk Solutions in the second quarter is likely to have benefited from new business growth, solid retention rates and effective management of the renewal book portfolio. Additionally, strong growth in various regions, including the Pacific and EMEA, is expected to have contributed positively to their results.
The Zacks Consensus Estimate for the Commercial Risk Solutions line’s revenues indicates 10.4% growth from $1.8 billion a year ago, whereas our model predicts a 10.9% increase. We expect the unit to witness 4% organic revenue growth in the quarter under discussion.
The consensus mark for the Health Solutions line’s second-quarter revenues suggests 40.8% growth from the year-ago level. The segment is likely to have been supported by an increase in core health and benefits brokerage. Additionally, the growing strength in Consumer Benefit Solutions and the NFP acquisition are expected to have aided its performance in the quarter under review.
The Zacks Consensus Estimate for Reinsurance Solutions' revenues indicates growth of more than 6% compared with the $607 million from a year ago, while our model forecasts a 5% increase. Strong Strategy and Technology Group’s performance, new business generation and solid retention are expected to have benefited the unit.
The consensus estimate for second-quarter revenues in the Wealth Solutions segment suggests an almost 22% increase from the previous year, whereas our model foresees a 24% rise. The unit is likely to have been supported by heightened demand for advisory services, project-related activities and retirement growth during the quarter under review.
While the factors mentioned above are expected to contribute to the company's year-over-year growth, increased expenses from significant investments in priority areas for long-term growth, coupled with an uptick in certain discretionary and other costs, may have affected the margins. This is likely to have partially offset the upside, making an earnings beat uncertain.
Our model suggests the total operating costs in the second quarter to have increased nearly 20%, primarily attributed to increased expenses related to higher compensation and benefits. Specifically, the estimate for other general expenses is set at nearly $392 million, while compensation and benefits cost is pegged at almost $2 billion.
Price Performance
AON's stock has gained 2.8% in the year-to-date period compared with the industry’s growth of 14.4%. Additionally, the stock underperformed the S&P 500 Index, which rallied 17.1% during the same period.
YTD Price Performance
Image Source: Zacks Investment Research
What Should Investors Do Now?
Challenges in Aon's U.S. retail brokerage, driven by lower net new business and other factors, had already impacted its first-quarterresults, raising concerns about future performance. Its underperformance this year, inconsistent earnings surprise history, significant debt burden, rising expenses and risks related to international operations, such as those in Ukraine, are affecting investor confidence in the stock. Given these headwinds, Aon appears to be a risky investment in the short run. Exiting the stock may be a prudent decision for investors looking to mitigate potential risks.
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:
Palomar Holdings, Inc. (PLMR - Free Report) has an Earnings ESP of +3.00% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Palomar’s bottom line for the to-be-reported quarter is pegged at $1.11 per share, which remained stable over the past week. The estimate signals 29.1% year-over-year growth. The consensus estimate for PLMR’s revenues is pegged at $120.4 million, indicating a 34.9% increase from a year ago.
Oscar Health, Inc. (OSCR - Free Report) has an Earnings ESP of +3.23% and is a Zacks #2 Ranked player.
The Zacks Consensus Estimate for Oscar Health’s bottom line for the to-be-reported quarter is pegged at 16 cents per share, which signals a massive improvement from year-ago loss of 7 cents. The consensus estimate for OSCR’s revenues is pegged at $2.2 billion, a 43.4% jump from a year ago. It beat earnings estimates in each of the past four quarters, with an average surprise of 62.3%.
Prudential Financial, Inc. (PRU - Free Report) has an Earnings ESP of +0.11% and a Zacks Rank of 3.
The Zacks Consensus Estimate for Prudential's bottom line for the to-be-reported quarter is pegged at $3.43 per share, suggesting a 16.7% year-over-year increase. The estimate remained stable over the past week. The consensus estimate for PRU’s revenues is pegged at $13.8 billion, predicting a 9% increase from the year-ago period.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.