Aon has been witnessing downward earnings estimate revisions of late. The Zacks Consensus Estimate for current-year bottom line of $9.72 per share has moved 0.2% south over the past seven days, indicative of analysts’ bearish sentiment on the stock.

So, what could be the reason for this pessimistic stance?

In the recently reported quarter, the company’s earnings failed to meet estimates. Notably, the company’s first-quarter 2020 operating earnings of $3.68 per share missed the Zacks Consensus Estimate by 0.5%.

Moreover, Aon deferred its share buyback plan and halted M&A activities due to the COVID 19-led uncertainty. Due to this suspension, the company’s bottom line will be bereft of the cushion that share repurchase programs provide, which may bother investors.

Moreover, its high debt is  a concern. Long-term debt has been continuously increasing since 2014 due to an increase in commercial paper outstanding. Interest expenses have been persistently rising since 2014 (except in 2018). Its total debt is 71.3% (comparing with 212.8% as of Mar 31, 2020) of total capital, higher than the industry’s average of 55.1%. As of Mar 31, 2020, it had cash and cash equivalents of $690 million, lower than its long-term debt of $6.2 billion. Although the company will have to pay not more than $750 million of term debt in the upcoming year, we are concerned about its solvency level.

Aon as a global corporation is exposed to foreign currency fluctuations and has been facing an unfavorable impact of forex volatility on its earnings per share since 2012. In the first quarter of 2020, forex had an adverse impact of 3 cents per share.

Moreover, management anticipates a further negative impact of 3 cents per share in the second quarter, 4 cents in the third and 6 cents in the fourth quarter.

Aon’s business operations in more than 100 countries make its financial results sensitive to foreign exchange rate fluctuations, which might distort true period-to-period comparisons of changes in revenues or pretax income.

Zacks Rank and Price Performance

Shares of this currently Zacks Rank #4 (Sell) company have lost 9.2% year to date, wider than the industry’s decline of 6.6%.

(Source: Zacks Equity Research)