On Tuesday, Aon Corp (NYSE:AON) stock received an upgrade in its rating by Keefe, Bruyette & Woods, moving from Underperform to Outperform. Alongside the rating change, the firm also increased Aon's price target to $380 from the previous $313. This adjustment follows Aon's second-quarter earnings report for 2024, which displayed robust performance.
The firm attributes the upgrade to Aon's promising early-stage recovery in organic revenue growth and the potential for margin expansion. This optimism is partly due to the productivity increases expected from newly recruited brokers, which should help to balance out initial costs. Despite a slight reduction in the estimated earnings per share (EPS) for 2024 to $15.05 from $15.20, the firm has a positive outlook for the coming years.
The revised EPS estimate for 2024 takes into account a shortfall in the second quarter of 2024, alongside projections for a higher tax rate and a decrease in investment income.
However, Keefe, Bruyette & Woods has raised its EPS forecasts for 2025 and 2026 to $17.10 and $19.70, respectively. The firm's projections are based on expectations of accelerated organic growth and margin expansion, which could be slightly tempered by the anticipated higher tax rates.
The new price target of $380 is set at 22.2 times the updated estimated EPS for 2025. The firm's analysis suggests that the strong performance in the second quarter is a sign of Aon's potential for continued growth and profitability in the following years. The upgrade and new price target reflect a significant increase in confidence in Aon's financial prospects.
In other recent news, Aon Corp reported substantial growth in its second quarter of 2024, with a 6% increase in organic revenue and noteworthy contributions from its new acquisition, NFP.
Despite Aon's earnings falling short of expectations due to higher taxes and other factors, both Piper Sandler and RBC Capital raised their price targets for the company, maintaining their neutral and sector perform ratings, respectively. The earnings shortfall was offset by a robust organic growth, which exceeded projections and was favored by the market.
The successful completion of the NFP acquisition, which contributed significantly to Aon's second quarter results, was highlighted by both firms. The deal's margins met expectations and Aon's management confirmed the synergy targets related to the acquisition.
Aon's adjusted operating income grew by 19%, with margins reaching 27.4% in Q2. The company generated $721 million in free cash flow year-to-date and plans substantial share buybacks of $1 billion or more in 2024.
These recent developments indicate that Aon is making steady progress with its 3x3 plan, focusing on Risk Capital and Human Capital solutions. The company also announced the appointment of Edmund Reese as the new CFO.
With the integration of NFP and its 14 acquisitions in 2024, which are expected to contribute $45 million to $60 million of EBITDA in the same year, Aon is poised for continued growth.
InvestingPro Insights
In light of the recent upgrade and price target adjustment by Keefe, Bruyette & Woods, examining Aon Corp's financial metrics through InvestingPro provides a deeper understanding of the company's valuation and performance. With a market capitalization of $69.36 billion and a Price/Earnings (P/E) ratio of 25.59, Aon is being recognized for its financial strength. The P/E ratio, adjusted for the last twelve months as of Q2 2024, stands slightly lower at 23.97, indicating a potentially more attractive valuation compared to the current P/E.
An InvestingPro Tip highlights that Aon has raised its dividend for 12 consecutive years, demonstrating a strong commitment to returning value to shareholders. Furthermore, the company has maintained dividend payments for an impressive 45 consecutive years. This consistent dividend history, combined with a dividend yield of 0.85% and a recent 9.76% dividend growth, can be particularly appealing to income-focused investors.
For those interested in further insights, InvestingPro offers additional tips on Aon, including analysts' profitability predictions for the year and the company's high return over the last decade. To explore these and more, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 6 more InvestingPro Tips available for Aon, providing a comprehensive analysis for investors looking to make informed decisions.
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