3 Reasons Why Aon Is A Good Value Buy

| About: Aon Corporation (AON)

Aon Corporation (NYSE:AON) expects to report its earnings for its first full year after acquiring Hewitt Associates on Friday, February 3rd. Acquisitions are a part of the corporate culture at Aon, as the company name is a Gaelic word meaning "oneness" and Aon was started by a merger of two firms. The company's earnings per share for 2011 are expected to be $3.29, up from $3.12 last year. The stock traded at $48.14 at the close of January 27th. In this article, I highlight three reason why now is a good time to buy Aon shares.

1. Comparison To Competition
Compared to Marsh & McLennon Companies (NYSE:MMC), Willis Group Holdings (WSH), Arthur J. Gallagher (NYSE:AJG), and Towers Watson (TW), Aon is trading at a bargain right now. With a P/E ratio of 17.76, the stock is trading much lower than the industry average P/E ratio of 21. All of its major competitors trade between 20 and 25 except for Marsh & McLennon, who trades at 19.39 times earnings. Aon also has the expected earnings to back up a higher P/E ratio. EPS is expected to grow 10.6 percent next year and in the future should easily eclipse $4 per share.

2. Recent Bearish Activity
Before the eurozone worries struck last summer, Aon shares traded right around $50 per share. Since, the stock has had some recovery from its dip below $40 last September, but there is still a lot of upside potential. Investors see risk in how much of Aon's business is based in Europe. The company even announced a move of its headquarters from Chicago to London earlier in January. However, business services like risk management, insurance brokerage, and HR Consulting historically are "recession proof" and are needed regardless of the state of the economy. Expect Aon shares to continue to recover in the coming months.

3. Realized Gains From Past Mergers
Aon typically makes one large acquisition every one or two years. Its three most recent large acquisitions were Benfield in 2008, Hewitt Associates in 2010, and Westfield Financial in 2011. The largest one by far was Hewitt, as the company had about 26,000 employees when bought while Aon had 36,000 employees at the time. Aon's consulting practice was merged with Hewitt to form Aon Hewitt, which became the largest HR consulting firm in the world. Significantly improved earnings have not been realized yet, but the company's scale should significantly boost earnings in the coming year as Aon Hewitt begins to perform more as a single entity.

Conclusion
I believe that Aon shares will be trading at $58 in one year, while analysts have a one year target of $54.40 for the stock . The $54.40 means a 13 percent return for shareholders, which isn't bad. Business service companies generally have very low volatility and are less risky than most industries. With a Beta of .63 and an expected return of 13 percent to 20 percent, Aon is a great stock to have in your portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I was an intern for Aon in 2010, but currently have no relationship with the company.