Assessing Aon’s Value After News of $3 Billion NFP Wealth Business Sale

Thinking about what to do with your Aon shares or maybe eyeing the stock as a potential investment? You are not alone. After a sharp climb over the past few years, Aon’s price movements have certainly kept both optimists and skeptics busy. Over the last year, the stock has risen 5.3%. If you zoom out to five years, holders are sitting on a gain of 81.0%. This long-term performance might have you wondering whether the best days are behind Aon or if more growth awaits.

It has been anything but a dull year for Aon. The recent uptick of 2.2% over the past week comes as news broke that the company is close to offloading its NFP wealth business in a deal worth around $3 billion. Investors tend to like these asset sales, especially since Aon has said it will use the proceeds to fund new investment opportunities. Still, not every headline has been positive. A recent lawsuit alleging issues with credit insurance for start-ups briefly weighed on sentiment, perhaps helping explain why the stock is roughly flat so far this year, up just 2.5%.

So what is Aon actually worth today? Out of six major valuation checks, the company scores a 3, suggesting it is undervalued in half of the metrics analysts use to decide if a stock is cheap or expensive. To help break it down and really get a sense of where things stand, let’s look at the main ways to judge Aon’s value. Stick around to the end for a perspective that might change how you think about valuation altogether.

Aon delivered 5.3% returns over the last year. See how this stacks up to the rest of the Insurance industry.

Approach 1: Aon Excess Returns Analysis

The Excess Returns model examines how much a company earns in relation to the cost of funding its investments, focusing on return on invested capital. In Aon’s case, the model measures the firm’s profitability by comparing its returns to the minimum return required by shareholders, known as the cost of equity.

Here are the key figures: Aon’s book value stands at $36.36 per share, and its stable earnings per share are estimated at $761.85, calculated using the median return on equity from the past 5 years. The company’s cost of equity is $3.35 per share, while its excess return comes in at a striking $758.50 per share. This indicates that Aon is earning far more than what investors require for their capital, with an average return on equity of 1633.33%. The stable book value projected by analysts rises to $46.64 per share.

Based on these numbers, the Excess Returns valuation model estimates Aon’s intrinsic value as significantly higher than its current price. With an implied discount of 98.0%, the model suggests that Aon is deeply undervalued compared to what its underlying profitability would justify.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Aon.

Our Excess Returns analysis suggests Aon is undervalued by 98.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Aon Price vs Earnings

The price-to-earnings (PE) ratio is the preferred metric for valuing established, profitable companies like Aon, as it directly relates a company's stock price to its underlying earnings power. A low or high PE ratio can reflect investors' expectations for future earnings growth and also takes into account the perceived risks facing the business.

Currently, Aon trades at a PE ratio of 30.14x. This is significantly higher than the insurance industry average of 14.23x and also above many of its peers, which average 58.02x. Such a premium often signals that investors expect robust future growth or believe the business carries less risk than its industry counterparts.

Rather than just comparing raw ratios, Simply Wall St’s Fair Ratio provides a more tailored benchmark. The Fair Ratio for Aon is 17.64x, calculated by factoring in elements like expected earnings growth, industry dynamics, profit margins, market capitalization, and company-specific risks. This makes it a much more comprehensive measure than looking at the industry or peer averages alone.

With Aon’s actual PE ratio of 30.14x sitting well above its Fair Ratio of 17.64x, the stock appears to be trading at a premium to what would be considered reasonable for its profile.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Aon Narrative

Earlier we mentioned that there's an even better way to understand valuation, so let's introduce you to Narratives.

A Narrative is simply your story or perspective about a company that ties together your expectations, such as future revenue, earnings, and margins, and connects these to a fair value estimate. Unlike traditional metrics, Narratives let you combine the facts with your outlook, turning numbers into a clear investment thesis you can track over time.

This powerful tool is available on Simply Wall St's Community page, where millions of investors use Narratives to visualize their views, compare Fair Value versus the latest Price, and get clarity on whether to buy, hold, or sell. The best part is that Narratives update automatically when new earnings or news are released, helping you stay on top of your thesis as reality changes.

For example, some investors are optimistic about Aon’s operational efficiencies and project a fair value of $451.0, while others focus on risks from a soft market and see a fair value closer to $349.0. Narratives let you see both sides and decide for yourself, all in one place.

Do you think there's more to the story for Aon? Create your own Narrative to let the Community know!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com