We have reiterated our Outperform recommendation on
) based on its steady operating growth momentum from a radical
reduction in operating expenses despite the significant
Allstate had reported third-quarter 2012 operating earnings
per share of $1.46, which significantly exceeded the Zacks
Consensus Estimate of $1.15 and the year-ago quarter's earnings
of 16 cents. Reported net income stood at $723 million or
$1.48 per share for the reported quarter, as opposed to $175
million or 34 cents per share in the prior-year quarter,
witnessing a stark escalation.
Allstate is well positioned to be a long-term gainer in
personal lines, given its scale, pricing sophistication and
product portfolio. Further, proficient expense management,
coupled with enhanced premiums, have improved the combined ratio,
return on equity (ROE) and book value per share in the first nine
months of 2012.
Additionally, Allstate's solid risk-adjusted capitalization,
competitive strength, favourable non-catastrophe operating
results along with comparably strong underwriting capabilities
and investment leverage bode well for future growth. These
factors also raise the risk-absorbing capacity of the company,
particularly that arising from the catastrophe losses.
Allstate is expected to incur pre-tax catastrophe losses of
over $1.08 billion in the fourth quarter of 2012 due to the
occurrence of Hurricane Sandy, which hit the Northeast U.S.,
where Allstate owns about 10.7% of the market share. Yet, we
believe that the company's proactive risk mitigation and return
optimization programs will help maintain its buoyancy.
Allstate's disciplined underwriting approach and expense
management has also led to a more consistent profitability
compared with many of its peers such as
The Travelers Cos.
). Moreover, the acquisition of Esurance and Answer Financial
White Mountains Insurance Group Ltd.
) has been boosting online auto sales, thereby generating cost
While risks related to the premium generation,
policies-in-force and investment returns does stem from the
ongoing capital market volatility, weak property and casualty
business and low-interest rate environment, we believe that
Allstate is well-capable to tap the opportunities driven by an
improved global economy in the future.
Based on these pros and cons, the Zacks Consensus Estimate for
Allstate is currently pegged at a loss of 6 cents per share,
about 104% lower than the year-ago quarter. However, earnings are
projected to surge by 182% to be $3.72 per share in 2012,
drastically higher than $1.32 per share reported in 2011.
Additionally, the quantitative Zacks Rank for Allstate is
currently "2," indicating a short-term Buy rating. Slight upward
pressure on the shares is expected over the near term.
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