While the insurance brokers industry currently ranks an unimpressive 112th of 197 IBD industry groups, there is still potential value to be found.
On Monday, billionaire Warren Buffett announced the biggest deal in Berkshire Hathaway in years, acquiring insurance broker Alleghany for $11.6 billion.
With the Oracle of Omaha making such a splash, investor attention is drawn to names in the industry that could be worth investment. Notably, some names such as American International Group and Jackson Financial topped buy points today.
Aon which offers a potential growth opportunity displaying strong stable results. And Aon stock is in the IBD Breakout Leaders Index,
Aon is a multinational company that sells different types of insurance, pension plans, and offers risk management consulting services. The large company — headquartered in London — has over 50,000 employees across 120 countries.
Aon has experienced strong growth this past year, with EPS growing to $12 from $9.81 in 2020. Revenue was also up 10% on the year to $12.2 billion. Strong results led Aon to hike the dividend 10% and sign off on the approval for a new $7.5 billion share repurchase plan.
Aon Stock Benefits From Inflation Tailwind
Amid a strong economic recovery from the global Covid-19 pandemic, analysts expect Aon's results to continue to improve. Analysts expect EPS to increase to $13.19 and $14.60 in 2022 and 2023, respectively.
Aon has had a stable track record, with an Earnings Stability Factor of 4 on a scale of 1 (most stable) to 99 (least stable), so meeting these results seem feasible. Furthermore, Aon has a lot of positive tailwinds in the current macroeconomic environment.
Inflation is expected to be an overall positive to the business, with every 100 basis point increase in interest rates projected to lead to a $60 million benefit in investment income. Furthermore, the majority of Aon's debt is currently at a fixed rate, which also positions it well in the short term for rising rates.
While Aon represents a stable investment, there's the risk that higher interest rates could cause a significant slowdown in economic growth. That could result in the company performing poorly alongside the broader market.
With an IBD Composite Rating of 88, there is certainly some room for fundamental improvement. Nevertheless, for investors who expect continued economic growth accompanied by rising interest rates, Aon represents a strong candidate for investment.
Aon stock is forming a cup base with a $326.35 buy point, according to MarketSmith. The stock cleared resistance around 300 last week.
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