Aon (AON) Earnings Beat Lifts Insurance Brokerage Stocks

Bottom line grew 4% amid higher reinsurance sales and lower costs

Aon Plc (AON) shares climbed 7.27% Friday after the $52 billion insurance brokerage firm posted better-than-expected quarterly results. The company reported fourth quarter (Q4) earnings of $2.62 per share, surpassing Wall Street's expectation of $2.48 per share. Meanwhile, revenue of $2.97 billion came in above consensus forecasts by $132 million. On a year-over-year basis, the top and bottom line grew 2% and 4%, respectively.

Key Takeaways

  • Aon surpassed analysts' forecasts and anticipates modest Q1 earnings growth.
  • Aon shares broke out from a trading range, opening the door to a possible test of the all-time high set in February last year.
  • Marsh & McLennan Companies, Inc. (MMC) shares broke above a short-term trendline that may trigger a move to crucial overhead resistance at $120.

Aon Management attributed higher sales in the company's reinsurance business and lower operating costs for the upbeat report. Looking ahead, CEO Greg Case expects earnings growth as economic conditions improve against a backdrop of uncertainty. "As we look to 2021, though significant uncertainty remains, we expect – as economic conditions continue to stabilize and improve, we anticipate modest growth in Q1 with growth increasing toward mid-single-digits as we continue through the year," he told investors during the earnings call, per Yahoo! Finance.

In March last year, Aon announced that it had agreed to combine with key rival Willis Towers Watson Public Limited Company (WLTW) to accelerate innovation. Under the proposed deal, Aon shareholders will own 63% of the combined company, while Willis Towers Watson shareholders will take ownership of the remaining 37%. However, a cloud hangs over the transaction after the European Commission opened an investigation to assess whether it could severely reduce industry competition. As of Feb. 8, 2021, Aon stock offers a modest 0.82% dividend yield and is trading 17.27% higher over the past three months. Since the start of the year, the shares have added nearly 6%.

From a technical standpoint, the share price has remained stuck in a trading range since early June as investors digested the merger news. Friday's optimistic outlook for 2021 acted as the catalyst for a breakout above the sideways action, opening the door for a possible test of the all-time high set in February last year. Those who buy here should place a stop-loss order at the midway point of Friday's wide-ranging day ($216.30) and target a move to the all-time high at $238.19.

Chart depicting the share price of Aon Plc (AON)

A wide-ranging day describes the price range of a stock on a particularly volatile day of trading. Wide ranging days occur when the high and low prices of a stock are much further apart than they are on a typical day.

Marsh & McLennan Companies, Inc. (MMC)

Traders who follow the group should also take a look at professional services firm Marsh & McLennan, which cheered Aon's improved 2021 outlook. Last month, Marsh & McLennan's risk and insurance services segment reported Q4 revenues of $2.5 billion, up 3% from the year-ago quarter. During the earnings announcement, management said that it expects to deploy approximately $3.5 billion in 2021 for dividends, debt reduction, acquisitions, and share buyback programs. Trading at $113.60, with a market capitalization of $57.71 billion and offering a 1.64% dividend yield, Marsh & McLennan stock has gained 3.69% over the past three months as of Feb. 8, 2021. Year to date, the shares are trading around 3% lower.

After retracing to the 200-day simple moving average (SMA) over the past six weeks, the share price found support near the closely watched indicator. More recently, a breakout above a short-term trendline may trigger a move to crucial overhead resistance at $120. A stop-loss order placed beneath the Feb. 4 low offers a risk/reward ratio of over 1:2, assuming a fill at Friday’s closing price ($2.96 risk per share vs. $6.40 reward per share).

The risk/reward ratio marks the prospective reward investors can earn for every dollar they risk on an investment. Many investors use risk/reward ratios to compare the expected returns of an investment with the amount of risk they must undertake to earn these returns. 

Chart depicting the share price of MMC.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.  

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