Will Stiff Global Competition Limit Aon plc's (AON) Growth?

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On Aug 19, we issued an updated research report on Aon plc. AON.

Aon’s second-quarter 2016 operating earnings per share of $1.39 narrowly missed the Zacks Consensus Estimate of $1.40. Earnings, however, increased 6% from the year-ago quarter on a significant reduction in Total Operating Expenses.

With respect to surprise trend, this Zacks Rank #4 (Sell) insurance broker beat estimates in three of the last four quarters, with an average positive surprise of 2.55%. Moreover, the Zacks Consensus Estimate has been revised downward over the last 30 days.

Aon has been issuing debts occasionally to repay outstanding debts. A high level of leverage increased the company’s borrowing costs and financial risk, thereby making additional borrowing expensive going forward. At the end of second quarter, a 15% increase in long-term debt has been observed over that in year-end 2015. The debt-to-equity ratio as on Jun 30, 2016 was 1.11 compared with 0.93 as of Dec 31, 2015.

As a global corporation, Aon is exposed to foreign currency fluctuations, which historically has an unfavorable impact on its bottom line. However, the company anticipates a negligible impact for the rest of the year if currency remains stable at current rates.

Aon faces competition from players with greater market share, more financial resources and stronger brand recognition. Its Risk Solutions segment, in particular, faces intense competition from industry giants that is likely to hamper its business opportunities, thus limiting top-line growth.

However, Aon’s inorganic growth strategies like acquisitions and partnerships to expand operations overseas, divesture of non-performing operations, numerous expense-saving initiatives are strong positives.

Also, Aon’s strong financial position enables it to continuously create shareholders’ value through share repurchases and dividend payments.

Stocks that Warrant a Look

Investors can consider some better-ranked insurance stocks like Erie Indemnity Company ERIE, Primerica Inc. PRI and Swiss Re Ltd. SSREY. Each of these stocks holds a Zacks Rank #2 (Buy).

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PRIMERICA INC (PRI): Free Stock Analysis Report
AON PLC (AON): Free Stock Analysis Report
ERIE INDEMNITY (ERIE): Free Stock Analysis Report
SWISS RE LTD (SSREY): Free Stock Analysis Report
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