Aon (AON) Q4 Earnings: What's In The Cards For The Stock?

Aon plc (NYSE:AON) is set to report fourth-quarter 2017 results on Feb 2, before the market opens.

Last quarter, the insurance broker's earnings surpassed the Zacks Consensus Estimate and rose 18% year over year on the back of revenue growth.

The company has an impressive surprise history. It surpassed estimates in three of the last four quarters with an average beat of 4.4%. This is depicted in the graph below :

Aon PLC Price and EPS Surprise

Factors to be Considered This Quarter

Aon has invested capital in numerous strategic initiatives to boost the performance of its Risk Solution segment. The segment is likely to perform well in the fourth quarter on the back of these investments.

We expect the company to have witnessed a rise in retention rates driven by proactive client partnerships. This should have aided its revenue base across geographical regions.

Aon has been continuously investing in technological upgrades as well as data and analytics. These investments are expected to drive business in the fourth quarter.

Continuing the previous trend, Aon expects its Health and Reinsurance Solutions to perform well in the fourth quarter, bolstering the top line.

The company is committed toward enhancing shareholders’ value. Its share repurchase programs might favor the margin by limiting the outstanding share count.

However, pricing pressure in various countries across Europe and Asia is likely to have affected Aon’s performance partially in the fourth quarter.

Operations in Latin America and Asia are likely to be affected by macroeconomic conditions, in turn, putting pressure on the top line.

Rising operating expenses might continue to weigh on the margins in the fourth quarter as well.

Aon’s heavy dependence on debt financing is expected to increase the interest expenses, in turn, weighing on the margins.

Earnings Whispers

Our proven model does not conclusively show that Aon is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Aon has an Earnings ESP of +0.46%. This is because the Most Accurate estimate is pegged at $2.35 while the Zacks Consensus Estimate stands at $2.34. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aon carries a Zacks Rank #5 (Strong Sell).

As it is, we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the finance sector that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

American Equity Investment Life Holding Company (NYSE:AEL) is set to report fourth-quarter earnings on Feb 7. The stock has an Earnings ESP of +1.12% and a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Primerica, Inc. (NYSE:PRI) has an Earnings ESP of +0.58% and is a Zacks #1 Ranked player. The company is set to announce fourth-quarter earnings on Feb 7.

Torchmark Corporation (NYSE:TMK) has an Earnings ESP of +0.12% and is a Zacks #1 Ranked player. The company is slated to release fourth-quarter earnings on Feb 7.

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