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Aon (AON) Surges 54.2% in a Year: More Room for Upside Left?

Aon's (AON) strategic measures and a solid segmental contribution might perk up its shares going forward.

This story originally appeared on Zacks

Aon plc AON has been in investor’s good books owing to its strategic initiatives and operational excellence.

Over the past 60 days, the stock has witnessed its 2021 earnings estimate move 7.6% north.

The insurance broker’s stock has gained 54.2% in the past year, outperforming the industry’s growth of 22.9%.

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The company boasts an impressive surprise record, beating on earnings in all the trailing four quarters, the average being 10.03%.

Overall buoyancy in the space on the back of rising demand for insurance products poises the company well for growth. Other companies in the same space that are benefiting from the same uptrend are Marsh & McLennan Companies MMC and Brown & Brown, Inc. BRO.

Let’s analyze the factors that make this currently Zacks Rank #3 (Hold) stock a compelling choice for investors right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The insurance broker witnessed a steady bottom-line improvement over the last many years on the back of its strategic cost-curbing measures. In the first six months of 2021, the bottom line climbed 12.2% year over year.

The company is steadily divesting non-core operations to streamline its business. In the second quarter of 2021, it entered into agreements to divest its U.S. retirement business to Aquiline, Aon Retiree Health Exchange to Alight and its retirement and investment business in Germany to Lane Clark & Peacock LLP, etc.

The sale of businesses streamlined the company’s operations, allowing it to focus more on profitable operations, generating a higher return on equity.

Acquisitions and alliances form one of the major growth strategies and the company has sealed a number of acquisitions over the past few years. Its acquisitions are mainly aimed at expansion of its health and benefits business, flood insurance solutions, and risk and insurance solutions operations.

Strategic collaborations also boost Aon’s capacity and makes it one of the largest insurance brokers. Although its deal with Willis Towers Watson Public Limited Company fell apart, we are hopeful that the company will continue  to leverage buyouts and tie-ups in the future.

Despite the economic unpredictability, the company resumed its share buyback plan in the third quarter of 2020, which is attractive to investors. Aon will continue to repurchase shares while maintaining higher-than-normal levels of cash for the near future. In the second quarter, the company announced a dividend hike of 11%.

Its expenses are expected to decline going forward, backed by its efficient cost management. Aon is committed to $800 million of expected cost synergies.

Further Upside Left?

We believe that the company is well-poised for growth on the back of various initiatives.

The Zacks Consensus Estimate for the company’s 2021 earnings indicates an improvement of 18.8% from the year-ago reported figure.

Stock to Consider

A better-ranked stock in the same space is eHealth, Inc. EHTH, which presently has a Zacks Rank #2 (Buy).

The company managed to deliver a trailing four-quarter earnings surprise of 66.02%, on average.

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