We maintain our Neutral recommendation on
)-based on its industry-leading position, agency expansion plans,
dividend increment and acquisitions. However, these positives were
partly offset by higher operating expenses and cost of debt.
Allstate Corp.'s first-quarter 2012 operating earnings per share
of $1.42 outpaced the Zacks Consensus Estimate of $1.12 and the
year-ago quarter earnings of 93 cents. Operating income spiked
43.7% to $710 million from $494 million in the year-ago
Allstate is well positioned to gain from personal lines over the
long term, given its scale, pricing sophistication and product
design. In order to boost its Property-Liability segment,
particularly the online auto sales where the company has been
underperforming over the past 3 years due to loss of clients,
Allstate acquired the third largest online auto insurance seller in
the U.S., Esurance, and Answer Financial from
White Mountains Insurance Group Ltd.
) in October 2011.
Moreover, the company aims to achieve 13% operating return on
equity by 2014 on the back of consistent auto profitability, higher
growth in the homeowners and annuity businesses, improved insurance
premiums and efficient investment and capital management.
Additionally, management's proactive risk mitigation and return
optimization programs continue to enhance shareholder value.
However, as Allstate deals with property and casualty business,
it is significantly exposed to catastrophic events. Escalating
losses from catastrophes have been weighing on the company's claims
and benefits expenses, while also significantly deteriorating the
company's combined ratio, bottom-line results and cash flows.
As pricing pressures continue to escalate, spreads between
premium growth and loss cost inflation are expected to remain
negative, while claims and operating costs continue to pose a
rising trend, leading to further compression in the underlying
Allstate's investment portfolio has been witnessing a rough
patch due to the ongoing equity market declines and sluggish
returns. Moreover, the company has been pursuing strategies to
narrow its product offerings under its Financial Segment as a
result of the volatility in the capital markets. The company has
reduced concentration in spread-based products, which has led to a
drop in sales in this segment.
Allstate has also wound down its banking operations and expects
to obtain regulatory approval so as to terminate its banking
charter status by June 30, 2012. While such efforts are expected to
relieve the business operations of stringent regulations, it also
restricts the scope of diversification along with costs related to
Currently, Allstate carries a Zacks #2 Rank (short-term Buy
ALLSTATE CORP (ALL): Free Stock Analysis Report
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