Aon Corp. Holding Its Own

Tags: aoc
11 Oct 2:59am
Posted by ZacksResearch
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Based in Chicago, Aon Corporation (AOC) is the world's largest insurance and reinsurance broker. Through its subsidiaries, the company operates in two broad segments: Risk and Insurance Brokerage Services, and Consulting. The Risk and Insurance Brokerage Services segment (81.8% of the $7.5 billion total revenues in 2007) consists of Aon's retail and reinsurance brokerage operations, which include a broad range of advisory and outsourcing services. The company recently sold Combined and Sterling as part of its strategy to exit the capital-intensive insurance underwriting business.

While AOC continues to win new clients from its business rivals and derive significant cost savings from its restructuring programs, ongoing softening in the property-casualty market will limit any significant margin expansion. After reviewing the results, we are slightly increasing our FY08 and FY09 estimates and maintaining our Hold recommendation on the shares.

We were pleased with the 2Q08 results, as the company was able to grow its top-line as well as the margins, despite unfavorable market conditions. Further, AOC continues to invest heavily in its core businesses, while exiting the non-core segments.

Our new six-month price target of $44.00 per share incorporates a slightly expanded multiple of 15.3x of our FY08 earnings estimate and 1.82x our estimated book value of $24.25 per share at March 31, 2009. Combined with the $0.60 per share annual dividend, this price target implies an expected return of 4.4% over the period.

Read the full analyst report on AOC.



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