Insurance Stocks

Aon PLC Valuation – November 2018 $AON

Company Profile (excerpt from Reuters): Aon plc, incorporated on December 8, 2011, is a professional services firm providing a range of risk, retirement and health solutions. The Company provides an advice and solutions to clients focused on risk, retirement, and health. The Company’s principal products and services include, Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions, and Data and Analytic Services. Commercial Risk Solutions includes retail brokerage, cyber solutions, global risk consulting, and captives. Retirement Solutions includes core retirement, investment consulting, and talent, rewards and performance. Health Solutions includes heath and benefits brokerage and healthcare exchanges. Data and Analytic Services include Affinity, Aon InPoint, and ReView.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of AON – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $39,190,000,000 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 102.43% Pass
5. Moderate PEmg Ratio PEmg < 20 31.35 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.30 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $5.23
MG Growth Estimate 6.59%
MG Value $113.40
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $75.84
MG Value based on 0% Growth $44.46
Market Implied Growth Rate 11.42%
Current Price $163.95
% of Intrinsic Value 144.57%

Aon PLC is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.63 in 2014 to an estimated $5.23 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 11.42% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Aon PLC revealed the company was trading above its Graham Number of $49.78. The company pays a dividend of $1.41 per share, for a yield of 0.9% Its PEmg (price over earnings per share – ModernGraham) was 31.35, which was below the industry average of 32.22, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Aon PLC receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Graham Number $49.78
PEmg 31.35
PB Ratio 9.30
Dividend Yield 0.86%
TTM Dividend $1.41
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $5,822,000,000
Total Assets $25,602,000,000
Intangible Assets $9,542,000,000
Total Liabilities $21,274,000,000
Shares Outstanding (Diluted Average) 245,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.95
Dec2017 $4.70
Dec2016 $5.16
Dec2015 $4.88
Dec2014 $4.66
Dec2013 $3.53
Dec2012 $2.99
Dec2011 $2.87
Dec2010 $2.37
Dec2009 $2.57
Dec2008 $4.80
Dec2007 $2.69
Dec2006 $2.13
Dec2005 $2.17
Dec2004 $1.63
Dec2003 $1.97
Dec2002 $1.61
Dec2001 $0.53
Dec2000 $1.79
Dec1999 $1.33
Dec1998 $2.07

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.23
Dec2017 $4.78
Dec2016 $4.62
Dec2015 $4.17
Dec2014 $3.63
Dec2013 $3.04
Dec2012 $2.90
Dec2011 $2.92
Dec2010 $2.94
Dec2009 $3.10
Dec2008 $3.14
Dec2007 $2.25
Dec2006 $1.98
Dec2005 $1.80
Dec2004 $1.58
Dec2003 $1.52
Dec2002 $1.35

Recommended Reading:

Other ModernGraham posts about the company

Aon PLC Valuation – February 2018 $AON
Aon PLC Valuation – January 2016 Update $AON
32 Companies in the Spotlight This Week – 12/6/14
Aon PLC Annual Valuation – 2014 $AON

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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