What's In The Cards For Aon Plc (AON) This Earnings Season?

Aon plc (NYSE:AON) is set to report second-quarter 2016 results on Jul 29, before the market opens. Last quarter, the company posted a positive earnings surprise of 1.50%. Let’s see how things are shaping up for this announcement.

Factors to be Considered this Quarter

The company is likely to witness an improvement in its underlying performance on the back of the strategic investment decisions taken during the to-be-reported quarter.

Aon is likely to display solid organic growth across all major business segments due to its industry-leading platform of client-serving capabilities and vast investments in data and analytics. Also, global expansions through strategic acquisitions should contribute to inorganic growth.

In addition, the company’s operations in the HR Solutions segment are expected to have improved in the to-be-reported quarter.

Moreover, continued share repurchase has lowered outstanding share count and in turn, should boost the bottom line. The company estimates shares outstanding to be about 750 million at the end of the second quarter.

This apart, the company remains exposed to stiff competition from both the insurers and reinsurers, which is likely to limit its top-line growth.

With the interest rate still low, the desired upside in the company’s investment income might be restricted.

Also, given its higher debt burden, the company estimates interest expense to be about $72 million in the to-be-reported quarter.

With respect to the surprise trend, Aon delivered positive surprises in the last four quarters with an average beat of 3.12%.

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 ESP and 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 +0.71%. This is because the Most Accurate estimate stands at $1.41 where as the Zacks Consensus Estimate is pegged lower at $1.40.

Zacks Rank: Aon carries a Zacks Rank #4 (Sell).

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 insurers that you may want to consider as these have the right combination of elements to post an earnings beat this quarter:

Manulife Financial Corporation (NYSE:MFC) has an Earnings ESP of +2.94% and a Zacks Rank #3. The company is slated to report second-quarter earnings on Aug 4.

Sun Life Financial Inc. (TO:SLF) has an Earnings ESP of +1.47% and a Zacks Rank #2. The company is set to report second-quarter earnings on Aug 10.

The All State Corporation (NYSE:ALL) has an Earnings ESP of +3.7% and a Zacks Rank #3. The company is likely to report second-quarter earnings on Aug 3.

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