• Wondering whether Aon’s current share price still reflects good value, or if most of the opportunity has already been priced in? This article looks at the stock through a clear valuation lens so you can frame your own view.
• Aon’s share price closed at US$310.90, with returns of 0.9% over the past week, a decline of 4.5% over the past month, a decline of 9.7% year to date and a decline of 10.9% over the past year. These figures may change how investors think about its risk and return trade off.
• Recent coverage of Aon has focused on how the stock’s performance compares with the broader Insurance sector and what that means for long term holders. Commentators have also highlighted that investors are paying close attention to how the business balances growth opportunities with capital returns. This helps frame current sentiment around the price.
• On Simply Wall St’s value checks, Aon scores a 4 out of 6 valuation score, which suggests some measures point to potential undervaluation while others are more balanced. The next sections will walk through the main valuation methods used on the stock and finish with a different way to think about value that many investors overlook.

Approach 1: Aon Excess Returns Analysis

The Excess Returns model looks at how much profit a company is estimated to generate above the return required by its shareholders, then capitalizes those excess profits into an intrinsic value per share.

For Aon, the starting point is a Book Value of $46.04 per share and a Stable EPS estimate of $23.59 per share, based on the median return on equity from the past 5 years. The implied Cost of Equity is $4.28 per share, so the Excess Return is $19.32 per share. That excess is driven by an Average Return on Equity of 41.63%, applied to a Stable Book Value estimate of $56.67 per share, sourced from weighted future book value estimates from 3 analysts.

Simply Wall St’s Excess Returns model converts these inputs into an intrinsic value of about $538.60 per share. Compared with the recent share price of $310.90, this suggests Aon trades at a 42.3% discount to the model’s estimate of fair value, which points to the stock looking undervalued on this approach.

Result: UNDERVALUED

Our Excess Returns analysis suggests Aon is undervalued by 42.3%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

Approach 2: Aon Price vs Earnings

For profitable companies, the P/E ratio is a useful yardstick because it links what you pay for the stock directly to the earnings it is currently generating. Investors typically accept a higher P/E if they expect stronger growth or see the earnings stream as relatively resilient, and a lower P/E if growth expectations or perceived risk are higher.

Aon currently trades on a P/E of 16.84x. That sits above the Insurance industry average P/E of 10.82x, and below the peer group average of 20.02x. Simply Wall St’s Fair Ratio for Aon is 12.00x. This Fair Ratio is a proprietary estimate of what a sensible P/E could look like given factors such as the company’s earnings profile, its industry, profit margins, market capitalization and key risks.

The Fair Ratio can be more informative than a simple industry or peer comparison because it adjusts for Aon’s specific characteristics rather than assuming that all insurers should trade on the same multiple. Comparing Aon’s current P/E of 16.84x with the Fair Ratio of 12.00x points to the stock trading above what this framework suggests as a reasonable level.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Aon Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Meet Narratives, a simple framework on Simply Wall St’s Community page where you connect your view of Aon’s business to specific forecasts for revenue, earnings and margins. These then flow through to a fair value that you can compare with today’s price to help decide whether to act. The narrative updates automatically as new earnings, news or analyst targets arrive. For Aon, that might mean one investor builds a more optimistic story around the US$436 fair value with firmer margins and a higher P/E, while another leans toward the US$298 fair value with softer growth and tighter margins. You can see both stories side by side and decide which one fits your own expectations best.

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.