• If you are wondering whether Aon at around US$335 per share looks expensive, cheap, or somewhere in between, the starting point is understanding what the current price actually reflects.
• Over the past week the stock is up 4.0%. Over the past month it is up 5.9%. Year to date the share price is down 2.6% and over the last year it has declined 4.9%. This mix of recent gains and longer term declines can leave you questioning whether recent strength is the start of a recovery or just a short term move.
• Recent coverage around the insurance sector, including ongoing discussion of risk management needs and the role of large brokers in complex corporate risk transfer, has kept attention on companies like Aon. This context helps explain why the stock can move even without company specific headlines dominating the news cycle, as investors reassess how much they are willing to pay for exposure to this business model.
• Aon currently has a valuation score of 3 out of 6, which means it screens as undervalued on half of Simply Wall St's checks. The next sections will walk through the main valuation approaches used to get there and then introduce an even more complete way to think about what the stock may be worth.

Approach 1: Aon Excess Returns Analysis

The Excess Returns model looks at how much profit a company generates above the return that shareholders require, then capitalizes those extra earnings into an estimated value per share.

For Aon, the starting point is a Book Value of $46.04 per share and a Stable EPS of $23.56 per share, based on the median return on equity from the past 5 years. The implied cost of equity is $4.27 per share, so the model treats the remaining $19.29 per share as excess return that Aon is generating over that required return.

An average return on equity of 41.63% and a Stable Book Value of $56.60 per share, based on weighted future estimates from 3 analysts, feed into this framework to project how long those excess returns might persist and what they could be worth today.

When these inputs are combined, the Excess Returns valuation points to an intrinsic value of about $537.91 per share. Compared with the current share price around $335, this suggests the stock appears about 37.7% undervalued on this model.

Result: UNDERVALUED

Our Excess Returns analysis suggests Aon is undervalued by 37.7%. Track this in your watchlist or portfolio, or discover 46 more high quality undervalued stocks.

Approach 2: Aon Price vs Earnings

For a profitable company like Aon, the P/E ratio is a useful way to relate what you pay for the stock to the earnings the business is currently generating. Investors typically accept higher P/E multiples when they expect stronger earnings growth or see lower risk, and lower P/E multiples when growth expectations are more modest or risks are higher.

Aon trades on a P/E of 18.16x. That sits above the Insurance industry average P/E of 11.28x, but below the peer group average of 22.14x. Simply Wall St’s Fair Ratio for Aon is 11.25x, which is the P/E that would be expected given factors such as its earnings profile, industry, profit margins, market cap and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with peers or the broad industry, because it adjusts for company specific traits rather than assuming that all insurers deserve similar multiples. Comparing Aon’s current P/E of 18.16x with the Fair Ratio of 11.25x suggests the stock screens as overvalued on this metric.

Result: OVERVALUED

Wall Street's queuing for one rocket. While SpaceX counts down to its IPO, other companies tied to the new space race are already in orbit. → 20 Compelling Space Companies watchlist · Global Space Race Investing Ideas screener · Scan the sector by valuation on Rocket Lab's valuation page.

Upgrade Your Decision Making: Choose your Aon Narrative

Earlier it was mentioned that there is an even better way to think about valuation, and on Simply Wall St that comes through Narratives. With Narratives, you set out your story for Aon by linking your assumptions on future revenue, earnings, margins and a fair value to that story. You can then see how that fair value compares with today’s price to help frame buy and sell decisions, track different community views on the Aon Community page, and even see how one investor might build a higher conviction narrative closer to the US$436 analyst target while another leans toward a more cautious view nearer US$298. Each Narrative is automatically refreshed as new news or earnings data is added to the platform.

Do you think there's more to the story for Aon? Head over to our Community to see what others are saying!

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.