On Jun 4, 2013, we downgraded our recommendation on
) to Neutral from Outperform based on its consistent high-expense
trend, which also weakened the first-quarter 2013 results on
Why the Downgrade?
Estimates for this property-casualty (P&C) insurer have
not experienced much traction since the company reported its
first quarter results on May 1. Allstate's revenue inched up 1.2%
year over year, although earnings of $1.35 per share stood lower
than $1.42 a share recorded in the year-ago quarter. However,
both revenue and earnings topped the Zacks Consensus Estimate by
14.5% and 2.3%, respectively.
While higher operating expenses and catastrophe losses
hindered growth, the latter are expected to be high in the second
quarter of 2013 as well. For just the month of Apr 2013,
catastrophe lossesare projected to be $216 million. These factors
also reduce the operating cash flow that declined 8.3% in the
first quarter of 2013.
Nevertheless, Allstate's premiums, underlying combined ratio,
book value and ROE witnessed improvement. Moreover, an
appreciated investment portfolio boosted liquidity.
Allstatedelivered positive earnings surprise in all of the last 4
quarters with an average beat of 7.3%.
Following the first quarter results, the Zacks Consensus
Estimate for 2013 climbed only 0.4% to $4.74 per share in the
last 30 days, whereas for 2014, it grew 0.6% to $5.13 per share.
Meanwhile, the Most Accurate Estimate for Allstate's 2013
earnings stands at $4.77, resulting in a positive ESP (read:
Zacks Earnings ESP: A Better Method
) of 0.63%.
Consequently, with the Zacks Consensus Estimates for both 2013
and 2014 showing no clear directional pressure on the stock in
the near term, Allstate now has a Zacks Rank #3 (Hold).
While margin contraction from auto and homeowners' segments
along with higher expenses are a concern, we believe that
Allstate's agency expansions, ratings affirmation,
industry-leading position, diversification and pricing discipline
augur long-term growth.
Other Stocks to Consider
While Allstate showcases a mixed sentiment currently, other
stocks that are outperforming in the insurance sector include
Platinum Underwriters Holdings Ltd.
Homeowners Choice Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
ALLSTATE CORP (ALL): Free Stock Analysis
HOMEOWNERS CHCE (HCI): Free Stock Analysis
MONTPELIER RE (MRH): Free Stock Analysis
PLATINUM UNDRWT (PTP): Free Stock Analysis
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