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Aon (AON) Stock Still Looks Undervalued Despite Its 17% Slide

Simply Wall St · 1d ago

Aon plc has seen a tough stretch on the screen this year, and that slide puts a sharper spotlight on a more basic question for you as an investor: Is the current share price properly anchored to the returns Aon earns on the capital it puts to work in its risk and human capital businesses?

  • Aon shares are down 16.7% year to date, which raises the question of whether the current market value still lines up with the returns the business is generating on its capital base.
  • The recent expansion of Aon's Ukraine war risk insurance facility and other advisory moves can reshape how efficiently the group uses capital and may influence how investors assess the durability and quality of those returns.
  • Prefer to judge Aon on earnings? See why Aon's 15.5x P/E tells a different valuation story.

The issue now is whether the returns Aon earns on its capital are strong enough and durable enough to justify where the stock is trading today.

If you are weighing Aon against other businesses through the lens of the returns they earn on capital, it can help to compare it with a wider group using 33 high quality undervalued stocks

Is Aon a Bargain on Excess Returns?

The Excess Returns model looks at how much value Aon creates above the return investors typically demand on its equity. Aon is modeled with book value of $45.27 per share and an average return on equity of 31.38%, which feeds into a stable earnings power of $19.80 per share. Against a cost of equity of $4.83 per share, that leaves an estimated excess return of $14.97 per share, a gap that reflects how efficiently the business is expected to use its capital over time.

The framework also assumes stable book value growing toward $63.10 per share. This supports the idea of meaningful reinvestment at those modeled returns and helps explain why the Excess Returns output sits substantially above the current share price of $286.80. Aon issuing US$13.5b in senior notes and planning to deleverage quickly gives a clear reason why the market might stay cautious on how those future excess returns are shared between creditors and shareholders. Find out what Aon could be worth using our Excess Returns estimate.

The Aon Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Aon pick up where the valuation puzzle leaves off. They spell out which assumptions on Aon's growth, margins and earnings would need to hold for the share price to sit meaningfully above or below where it trades today. Each one treats fair value as a thesis about the business that you can keep checking against how the story progresses over time on the Community page.

One of the top community narratives on Aon: 34% undervalued

"The current valuation and capital allocation choices suggest the share price reflects concern about acquisition risk, temporary EPS dilution and suspended buybacks..."

Discover why this Narrative puts Aon at 34% undervalued.

Before you act on Aon’s valuation, there is one more angle to check

Aon’s pricing, returns and capital choices tell only part of the story, because the research also flags specific concerns that could change how you frame the whole opportunity. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.