We have maintained our 'Neutral' recommendation on
) based on its consistent profitability, efficient capital
management, strong pricing discipline and claim management.
However, outsized exposure to catastrophic events and a weakening
investment portfolio are the downsides.
Allstate's second-quarter 2012 operating earnings per share of
87 cents substantially exceeded the Zacks Consensus Estimate of 52
cents and the year-ago quarter's loss of $1.24. Net income for the
reported quarter came in at $423 million or 86 cents per share,
against a net loss of $624 million or $1.19 per share in the
Allstate has a disciplined underwriting approach and efficient
operating expense management, which has led to a more consistent
profitability compared to many of its peers. Moreover, the
acquisition of Esurance and Answer Financial from
White Mountains Insurance Group Ltd.
) is boosting online auto sales, thereby generating cost synergies.
Increased agency distribution has also enhanced unit sales at
Despite above-average catastrophe costs, the Property-Liability
segment, which generates the majority of Allstate's revenue,
continues to be profitable as a result of careful pricing
discipline and strong claim management. Allstate is also
repositioning its product and distribution portfolio to enhance
long-term growth. Further, the company took an active step towards
reducing future catastrophe losses through the establishment of an
Enterprise Risk and Return Management (ERRM) system, which also
aided the improvement of combined ratio in the first half of
Additionally, prudent capital management remains Allstate's
forte. Management's proactive risk mitigation and return
optimization programs continue to enhance shareholder value, while
generating operating ROE of 11.4% in the first half of 2012.
However, Allstate deals with property and casualty business, as
a result of which it is highly exposed to catastrophic events.
Escalating losses from catastrophes have been weighing on the
company's claims and benefits expenses, while also deteriorating
the company's combined ratio, bottom-line results and cash flows to
a large extent.
Also, Allstate is experiencing deterioration in the brand
homeowners and standard auto policies, due to the negative impact
of raising returns in homeowners insurance. In addition, Allstate's
investment portfolio has been witnessing a rough patch due to the
ongoing equity market declines and sluggish returns.
The Zacks Consensus Estimate for Allstate's third quarter
earnings is currently at 79 cents per share, up about 396%
year-over-year. Of the 22 firms covering the stock, only one
revised its estimate upward, while no downward revisions were
witnessed in the past 30 days.
For 2012, Allstate's earnings are expected to be $4.15 per
share, climbing about 215% from 2011.
Allstate carries a Zacks #3 Rank, implying a short-term Hold
ALLSTATE CORP (ALL): Free Stock Analysis Report
WHITE MTN INS (WTM): Free Stock Analysis Report
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