Aon plc, a professional services firm, has released its 10-K report today. The company provides advisory and solutions to clients focused on risk, retirement, and health worldwide. Aon's annual report for 2023 shows consolidated total revenue of $13,376 million. This includes $7,043 million in Commercial Risk Solutions, $2,481 million in Reinsurance Solutions, $2,433 million in Health Solutions, and $1,431 million in Wealth Solutions, before certain intercompany eliminations. Aon has also entered into a definitive agreement to acquire NFP for an aggregate purchase price of approximately $7 billion in cash and approximately 20,000,000 class A ordinary shares. For more information, read the company's full 10-K submission here.
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $10,770 | $11,013 | $11,066 | $12,193 | $12,479 | $13,131 |
| Interest Income (M) | $278 | $307 | $334 | $322 | $406 | $470 |
| Operating Margins | 14% | 20% | 25% | 17% | 28% | 31% |
| Net Margins | 11% | 14% | 18% | 10% | 21% | 21% |
| Net Income (M) | $1,174 | $1,573 | $2,018 | $1,255 | $2,589 | $2,723 |
| Depreciation & Amort. (M) | $176 | $172 | $167 | $179 | $151 | $155 |
| Diluted Shares (M) | 247 | 241 | 233 | 226 | 213 | 205 |
| Earnings Per Share | $4.59 | $6.37 | $8.45 | $5.55 | $12.14 | $13.17 |
| EPS Growth | n/a | 38.78% | 32.65% | -34.32% | 118.74% | 8.48% |
| Avg. Price | $139.34 | $177.99 | $194.13 | $255.07 | $286.02 | $311.24 |
| P/E Ratio | 30.16 | 27.72 | 22.87 | 45.63 | 23.39 | 23.44 |
| Free Cash Flow (M) | $1,446 | $1,610 | $2,642 | $2,045 | $3,023 | $2,943 |
| CAPEX (M) | $240 | $225 | $141 | $137 | $196 | $273 |
| EV / EBITDA | 23.34 | 21.35 | 17.72 | 29.82 | 18.91 | 15.41 |
| Total Debt (M) | $6,495 | $8,051 | $8,177 | $10,556 | $11,715 | $1,282 |
| Net Debt / EBITDA | 3.39 | 3.1 | 2.47 | 4.41 | 2.89 | 0.11 |
| Current Ratio | 1.08 | 1.06 | 1.07 | 1.0 | 1.02 | 1.02 |
The stock of Aon appears to be undervalued at the current price of $311.24, based on several key growth and value factors.
From a growth perspective, Aon's revenues have been rapidly increasing at a rate of 3.8%, while its capital expenditures are also on the rise at a rate of 3.3%. Additionally, the company's operating margins have been consistently in line with the industry average, with a growth rate of 12.8% per year. Furthermore, Aon's earnings per share have seen substantial annualized growth of 19.2% over the last 6 years. These factors indicate a strong growth trajectory for the company.
However, there are also some negatives to consider. Aon's PEG ratio stands at 1.72, which is significantly above the threshold of 1, suggesting that the market may be overvaluing the firm's growth potential. This indicates a potential mismatch between the perceived growth and the market valuation of the company.
From a value perspective, Aon's current ratio of 1.02 shows that it has just enough current assets to cover its current liabilities. Additionally, the company's P/E ratio of 24.9 is higher than the Finance sector average of 12.38. However, its expected earnings of $17.75 per share indicate a lower forward P/E ratio of 17.5, which is consistent with its historical average P/E ratio of 28.78. This suggests that the current P/E ratio may not fully reflect the company's future earnings potential.
In conclusion, while Aon exhibits strong growth indicators and has a consistent historical P/E ratio, the high PEG ratio and the current P/E ratio being above the sector average indicate some caution. Therefore, investors should consider these factors carefully before making an investment decision.
