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William Blair's 7 Favorite Financial Stocks for 2012

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MasterCard (MA - Get Report)

Company Profile: Like Visa, MasterCard is a global payments processor. The company says its worldwide network processes more than 23 billion transactions each year.

Share Price: $371.45 (Dec. 6)

2011 Return: 65.8%

Investment Thesis: Analysts at William Blair say MasterCard, like Visa, will continue to gain from electronic payments. They note that MasterCard's business, like Visa's, faces substantial barriers to entry and that high incremental margins should drive operating margin expansion for MasterCard over time.

Also like Visa, William Blair analyst say MasterCard's guidance for the coming year could prove to be conservative.

"Management recently affirmed its 2011 to 2013 objectives of growing constant-currency revenue and EPS at a compound annual rate of 12% to 14% and more than 20%, respectively, while maintaining operating margins at a minimum of 50%," the analysts write. "We anticipate long-term sustainable EPS growth of 15% based on the secular tailwinds, modest margin expansion, and capital redeployment."

Aon Corp. (AON - Get Report)

Company Profile: Aon is a provider of risk-management services, insurance and reinsurance brokerage and human capital and management consulting. In July 2010, the company announced a merger with Hewitt Associates, an HR consulting and outsourcing company.

Share Price: $46.30 (Dec. 6)

2011 Return: 0.7%

Investment Thesis: William Blair analysts see several catalysts for Aon Corp. in 2012, the most notable of which is the merger with Hewitt, which should reap rewards next year. The analysts forecast a 100-basis-point improvement in pretax margin for 2012 and a 250-basis-point improvement for 2013.

"The margin in the brokerage segment has finally begun showing progress," the analysts write. "With forecast organic growth remaining solid (our estimate is 3% for 2012), the segment should be able to secure additional margin expansion for the next few years. We forecast 40 basis points of pretax margin improvement during 2012 and 2013."

Additionally, William Blair expects Aon's free cash flow growth to remain robust and their forecast assumes 30 million of share repurchases over the next two years, which they argue could be a conservative number if the cash flow from the merger with Hewitt. accelerates into 2012.

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DLLR $0.00 0.00%
AON $104.78 -0.60%
MA $96.70 0.53%
MS $26.26 0.34%
ONE $3.86 -1.30%


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