Aon plc (AON Quick QuoteAON - Free Report) is set to report third-quarter 2024 results on Oct. 25, 2024, before the opening bell. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings is currently pegged at $2.45 per share on revenues of $3.7 billion.

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The third-quarter earnings estimate has witnessed downward revisions over the past 60 days. However, the bottom-line projection indicates a year-over-year increase of 5.6%. The Zacks Consensus Estimate for quarterly revenues suggests year-over-year growth of 25.3%.

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AON missed the consensus estimate for earnings in three of the last four quarters and beat only once, with the average negative surprise being 2.2%.

Q3 Earnings Whispers for AON

Nonetheless, our proven model predicts a likely earnings beat for the company this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the odds of an earnings beat. That’s precisely the case here.

AON has an Earnings ESP of +0.33% and a Zacks Rank #3.

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You can see the complete list of today’s Zacks #1 Rank stocks here.

What’s Shaping AON’s Q3 Results?

The performance of Commercial Risk Solutions in the third quarter is likely to have benefited from new business growth and solid retention rates. Additionally, strong growth in various regions, including the EMEA and Latin America, is expected to have contributed positively to their results.

The Zacks Consensus Estimate for the Commercial Risk Solutions line’s revenues indicates 15.3% growth from $1.59 billion a year ago, whereas our model predicts a 16% increase. We expect the unit to witness 6% organic revenue growth in the quarter under discussion.

The consensus mark for the Health Solutions line’s third-quarter revenues suggests 50.6% growth from the year-ago level. The segment is likely to have been supported by global expansion in the core health and benefits brokerage business. Additionally, the growing strength in Consumer Benefit Solutions and the positives from the NFP acquisition are expected to have aided its performance in the quarter under review.

The Zacks Consensus Estimate for Reinsurance Solutions' revenues indicates growth of more than 5% from the $465 million recorded a year ago. Favorable retention rates, new business generation and facultative placement growthare expected to have benefited the unit.

The consensus estimate for third-quarter revenues in the Wealth Solutions segment suggests a more than 30% increase from the previous year’s $352 million, whereas our model foresees a 33% rise. The unit is likely to have been supported by sustained demand for advisory services and project-related activities during the quarter under review.

The factors mentioned above are expected to have contributed to the company's year-over-year growth, positioning it for an earnings beat. However, the positives are likely to have been partially offset by increased expenses from significant investments in priority areas for long-term growth, coupled with an uptick in certain discretionary and other costs.

Our model suggests the total operating costs in the third quarter to have increased nearly 36%, attributed to increased expenses related to higher compensation and benefits. Specifically, the estimate for other general expenses is set at nearly $405 million, while compensation and benefits cost is pegged at $2.15 billion.

AON’s Price Performance & Valuation

AON's stock has gained 22.8% year to date, underperforming the industry’s growth of 32%. Some of its peers like Marsh & McLennan Companies, Inc. (MMC Quick QuoteMMC - Free Report) and Arthur J. Gallagher & Co. (AJG Quick QuoteAJG - Free Report) have gained 17.2% and 28.8%, respectively, during this time. AON stock has lagged the S&P 500 Index, which has increased 23% during the same period.

AON’s YTD Price Performance

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Now, let’s look at the value Aon offers investors at current levels.

While the company’s share price has underperformed compared to the industry, its valuation appears slightly cheaper when measured against industry averages. Currently, AON is trading at 21.08X forward 12-month earnings, below the industry’s average of 21.87X.

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Assessing AON’s Prospects

AON pursues growth through acquisitions and partnerships, making numerous buyouts in recent years. The company’s acquisition of NFP is expected to drive significant growth in the coming quarters. NFP’s continued mergers and acquisitions are projected to contribute $45 million to $60 million in EBITDA annually.

Additionally, AON’s investments in artificial intelligence and the cyber risk space position the company for long-term growth. Its robust double-digit free cash flow growth outlook gives management the financial flexibility to keep investing in growth opportunities while also returning value to shareholders.

However, several challenges remain. AON’s substantial debt load and rising expenses — despite cost-cutting efforts — are weighing on the company. Global risks, such as those related to its operations in Ukraine, can further affect investor sentiment. Another factor to consider is the impact of foreign exchange rate fluctuations, which can distort AON’s financial results.

Final Words

While AON’s long-term growth potential looks promising due to its strategic investments, now might not be the best time to buy. Current investors can hold onto their shares and benefit from its growth initiatives. However, potential buyers may want to wait for a more favorable entry point, paying close attention to the company’s debt management and upcoming earnings.