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AON Corporation (AON)

This insurance company beat analysts’ estimates by $0.18 last quarter, and insiders have just added more than 65,000 shares of the company to their holdings.

AON Corporation (AON)
From Positive Patterns

AON Corporation (AON) is a major player in the “risk” business and is one of the biggest insurance brokers in the world. AON places both reinsurance and straight/insurance with numerous different carriers in a broad number of areas. Insurance is about two-thirds of AON revenues. AON is set up into two segments. The first and largest is called risk/management services = insurance, and the other one-third of revenues come from H/R and outsourcing services, where AON is a significant player also with less than $4 billion in revenues (and about twice that, $8 billion, in revenues from the insurance division).

AON does not ‘write’ insurance. Rather, the company places insurance for the client with the best insurance company it can find “for” the client—so AON carries no risk, etc., when it comes to writing insurance.

AON has a market cap of about $26 billion and only $5 billion or so in net debt. AON boasts a very strong balance sheet that is A+ rated (by, among others). Free cash flow is strong and should be around $8.50 or so. AON is going to be generating a lot of free cash flow ahead, indeed after some selling of the lesser units and making some smart acquisitions.

Earnings are rising nicely here, from $2.99 in 2012 to around $6.50/estimated this year. That’s an impressive double in earnings in just four years.

The USA accounts for some 50% of AON’s revenues, and the rest are spread across the globe with about 14% in England.

AON has been getting more aggressive about buying back stock, with about $4 billion left in the most recent provision for stock buybacks (that would be about 15% of the current/outstanding shares). From the peak of about 340 million shares in 2010 and with a 30 million share buyback estimated this year, the outstanding shares should drop to around 255 million by the end of this year, with more to come ahead.

AON is in very good shape and I expect higher earnings ahead, so I would buy this up to $100. A close above $107 would be very good news. I would consider it a long-haul investment.

Bob Howard, Positive Patterns, P.O. Box 310, Turners, MO 65765, 417-887-4486, March 4, 2016