Essential Insights for Aon Shareholders

Aon shares fell by -7.8% during the day's afternoon session, and are now trading at a price of $282.21. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.

Aon's Valuation Is in Line With Its Sector Averages:

Aon plc, a professional services firm, provides a range of risk and human capital solutions worldwide. The company belongs to the Finance sector, which has an average price to earnings (P/E) ratio of 12.38. In contrast, Aon has a trailing 12 month P/E ratio of 22.5 based on its earnings per share of $12.52.

There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.

One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.

Aon's PEG ratio is 1.8, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

Generally Positive Cash Flows but Not Enough Current Assets to Cover Current Liabilities:

2018 2019 2020 2021 2022 2023
Revenue (M) $10,770 $11,013 $11,066 $12,193 $12,479 $13,376
Interest Income (M) $278 $307 $334 $322 $406 $484
Operating Margins 14% 20% 25% 17% 28% 28%
Net Margins 11% 14% 18% 10% 21% 19%
Net Income (M) $1,174 $1,573 $2,018 $1,255 $2,589 $2,564
Depreciation & Amort. (M) $176 $172 $167 $179 $151 $167
Diluted Shares (M) 247 241 233 226 213 205
Earnings Per Share $4.59 $6.37 $8.45 $5.55 $12.14 $12.51
EPS Growth n/a 38.78% 32.65% -34.32% 118.74% 3.05%
Avg. Price $139.34 $177.99 $194.13 $255.07 $286.02 $280.97
P/E Ratio 30.16 27.72 22.87 45.63 23.39 22.3
Free Cash Flow (M) $1,446 $1,610 $2,642 $2,045 $3,023 $3,183
CAPEX (M) $240 $225 $141 $137 $196 $252
EV / EBITDA 23.34 21.35 17.72 29.82 18.91 17.53
Total Debt (M) $6,495 $8,051 $8,177 $10,556 $11,715 $12,403
Net Debt / EBITDA 3.39 3.1 2.47 4.41 2.89 2.94
Current Ratio 1.08 1.06 1.07 1.0 1.02 1.0

Aon benefits from strong operating margins with a positive growth rate, generally positive cash flows, and growing revenues and a flat capital expenditure trend. The company's financial statements show a strong EPS growth trend and reasonable leverage levels. However, the firm has not enough current assets to cover current liabilities because its current ratio is 1.0.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.