Last autumn, the portfolio manager also bought shares of Aon (AOC), the world's largest insurance broker and consultant, as a play on pricing stability returning to the P&C business. Aon's revamped managementhas turned the company around via acquisitions over the last four years. As a result, AON has picked up market share from rivals, and enjoys widening margins. At its recent price of 38, AON was fetching roughly 11.6 times the consensus 2009 earnings estimate of $3.31 a share.

Another holding, Aon, with its arch rival, Marsh & McLennan (MMC), forms what is almost a duopoly in insurance brokering for the world's largest 1,000 corporations. Says DeGulis: "This is a business that is not capital-intensive, so returns are high." Aon trades at 13 times expected 2009 EPS, is taking market share, has a balance sheet that is a fortress, and is buying stock back. "There's cyclical risk, but at 13 times we like Aon," he says, and think it's worth about 55, versus a recent 38.

Buy -- Price 47.97 on Aug. 27
by FTN Midwest Securities

Aon [will] buy Benfield Group Limited (BFD.U.K.) for GBP 3.50 ($6.55) a share in cash, and assume GBP 91 million of BFD's net debt... . . The offering price was at a 29% premium to BFD's Aug. 21 close; $122 million of expense-savings potential will be fully realized in 2011. We believe the combination is a smart one, capitalizing on Benfield's ... risk-modeling expertise. The soft property-reinsurance market [presents] challenges ... yet we see significant [long-term] upside. Market cap: $14.3 billion.

Buy - Price 41.44 on Feb. 11
by FTN Midwest Securities

AOC reported GAAP earnings of 64 cents a share and 59 cents EPS from continuing operations (ex-life-insurance units, expected to be sold by end of 2Q08). EPS from continuing operations [were] 2 cents [a share below our estimate, and] 7 cents [below consensus]. EPS from continuing operations rose 37%...Organic revenue growth for insurance brokerage was 2%; consulting posted a 5% decline...[Earnings before interest and taxes] margin rose from 12% in 4Q06 to 15.2% in 4Q07. For 4Q07, insurance-brokerage operations' pretax margins rose from 12.9% to 16.4%...revenue growth 8%/exp- ense growth 3%...Market-cap: $12.3 billion.

Employment

Aon's $2.6 billion buyback is in addition to the $180 million remaining on its previous buyback authorizations. The insurance giant also signed definitive agreements to sell two businesses for $2.75 billion cash.

The stock trades for 6x cash flow.

Goldman Sachs said it is upgrading Aon (AOC) to Buy from Neutral based on earnings growth and lack of exposure to mortgage crisis. See 13% earnings growth in 2008, with modest topline growth as company benefits from MMC's problems. Price target at $56.

Patrick Ryan

Jack Carter

Downgraded by Keefe Bruyette from Outperform to Mkt Perform