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Roof Leaker To Watch: Aon (AON)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Aon ( AON) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Aon as such a stock due to the following factors:

  • AON has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $106.5 million.
  • AON has traded 795,483 shares today.
  • AON is trading at 1.88 times the normal volume for the stock at this time of day.
  • AON crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on AON:

Aon plc provides risk management services, insurance and reinsurance brokerage, and human resource consulting and outsourcing services worldwide. The stock currently has a dividend yield of 1.2%. AON has a PE ratio of 21.4. Currently there are 4 analysts that rate Aon a buy, no analysts rate it a sell, and 10 rate it a hold.

The average volume for Aon has been 1.3 million shares per day over the past 30 days. Aon has a market cap of $24.9 billion and is part of the financial sector and insurance industry. The stock has a beta of 1.01 and a short float of 1.1% with 2.46 days to cover. Shares are up 2.4% year-to-date as of the close of trading on Thursday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Aon as a buy. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, notable return on equity, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:

  • AON PLC has improved earnings per share by 32.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AON PLC increased its bottom line by earning $3.54 versus $2.99 in the prior year. This year, the market expects an improvement in earnings ($5.43 versus $3.54).
  • Despite its growing revenue, the company underperformed as compared with the industry average of 10.6%. Since the same quarter one year prior, revenues slightly increased by 0.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Insurance industry and the overall market, AON PLC's return on equity exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has slightly increased to $344.00 million or 3.30% when compared to the same quarter last year. In addition, AON PLC has also vastly surpassed the industry average cash flow growth rate of -72.50%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.

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