On the four Ms, Aon earns 72 for management and 81 for moat. The management score rests on a return on invested capital of 12.2% and a gross margin of 47.7% — figures that describe a business earning a respectable return on what it employs. Debt sits at 1.77x equity. The wide moat and strong management are not the same judgement, and the gap between them is where the argument about this business sits.
The valuation runs on assumptions chosen to understate rather than flatter. Growth is modelled at 9.2% a year, the rate measured from the filings. The exit multiple assumed is 18.4x. That produces an intrinsic value of $198.93, a 10-CAP price of $155.31 and a payback time price of $188.37, with the value zone set at the highest of the three, $188.37. Today's price of $275.95 is 46% above it.
The operating figures describe a business performing at a high level; the price asks for that performance to continue and then some. A margin of safety score of 36 is the measure of how little room that leaves for being wrong.
| Price | $275.95 |
| Market cap | $58.5B |
| P/E ratio | 15.2x |
| Return on invested capital | 12.2% |
| Gross margin | 47.7% |
| Debt to equity | 1.77x |
| Free cash flow yield | 4.2% |
| Growth rate used | 9.2% |
| Growth rate measured | 9.0% |
| Exit multiple assumed | 18.4x |
| Company | Moat | Buy price |
| Arthur J. Gallagher & Co. (AJG) | 60 | $140.91 |
| Marsh & McLennan Companies, Inc. (MRSH) | 96 | $122.88 |
| Willis Towers Watson (WTW) | 64 | $187.60 |
| Brown & Brown (BRO) | 95 | $69.93 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Aon rather than accepting ours.