Chicago-based insurance broker Aon received a downgrade from Merrill Lynch yesterday from “Buy” to “Neutral.”
While Aon's stock is within 2.6 percent of Merrill's price objective of $38, and in a comparable brokerage and consulting firm it would allow it to raise its price target modestly, Merrill said it did not see enough upside to maintain a “Buy” rating on the shares.
Merrill said it was also lowering its 2007 and 2008 earnings per share estimates by 10 cents to $2.75 and $3.05, respectively. The lower estimate was due to a more conservative view of buyback activity in the near term.
Merrill said it expected Aon to take the proceeds from the sale of its insurance company units to buy back more stock, but it does not appear the firm plans to pursue an accelerated buyback program.
Merrill also reduced its earnings per share estimate by one cent to $2.01 for 2006.
Aon is expected to gain some market share over the next several years, Merrill said, but organic growth will be challenged by the continued soft market.
The company's cost saving's plan should improve Aon's margin, but it may not be as dramatic going forward as it has in the past.
Aon's stock closed down 22 cents yesterday at $36.80.
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