Is it too late to buy Aon stock as CFRA downgrades to hold?

On Friday, Aon Plc (NYSE:AON) shares edged slightly lower after reporting its fiscal third-quarter results. The company announced its most recent quarterly results before markets opened, beating analysts expectations on non-GAAP earnings and revenue. AON also received a rating downgrade from CFRA, with the firm citing fair valuation following this year’s 54% rally.

AON posted FQ3 non-GAAP earnings per share of $1.74, outperforming the consensus estimate of $1.70. However, its GAAP EPS of -$3.99 was $1.87 below the average for Street estimates, while revenue for the quarter increased by 12.5% from the same quarter last year to $2.7 billion, $100 million above expectations.

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CFRA analyst Catherine Seifert, downgraded the stock to hold from buy saying it had peaked to fair valuation after rallying 54% this year.

AON’s growth is still exciting

From an investment perspective, AON shares trade at reasonable trailing 12-month and forward P/E ratios of 35.12 and 24.71, respectively. In addition, analysts expect its earnings per share to grow by 32.50% this year before rising at an average annual rate of 14.21%.

Therefore, the stock could be an exciting option for growth investors, as cited by CFRA’s Seifert. In a note to investors, she wrote:

“We think Aon’s ability to produce 12-15% organic growth (above most peers) will help support the shares’ premium to peers and historical averages.”

Technically, AON shares seem to be trading within an ascending channel formation in the intraday chart. As a result, the stock has surged to the overbought conditions of the 14-day RSI.

Therefore, although the stock is yet to retest the trendline resistance, investors could target short-term pullbacks at about $305.80, or lower at $289.76, while $333.73 and $349.66 are resistance levels.

Is there a better opportunity to buy?

In summary, although AON shares offer exciting growth prospects at reasonable valuation multiples, the recent rally has pushed the stock to overbought conditions creating an opportunity for a pullback.

Therefore it may be best to wait for the price to retest current support levels before buying.

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