On Jun 27, we issued an updated research report on
The Allstate Corp.
). The company's diversified business-mix and proactive capital
management is partially offset by market risks and higher
catastrophe (CAT) losses.
This Zacks Rank #3 (Hold) stock maintained an earnings streak in
all the last 4 quarters with an average beat of 16.1%. Although the
company's first-quarter 2014 earnings topped the Zacks Consensus
Estimate by about 14%, it fell short of the year-ago quarter figure
Allstate's property and casualty (P&C) business is
significantly exposed to catastrophic events, as witnessed in the
past years. About $445 million (up 24% over prior-year quarter) of
CAT losses were incurred in first-quarter 2014 due to severe winter
storms and fire-related losses. These also deteriorated the
underwriting income and combined ratio during the quarter.
Meanwhile, the company anticipates pre-tax catastrophe losses of
about $720 million ($468 million post-tax) for April and May 2014,
which is 34% higher than the year-ago period, further weighing on
the bottom line and other growth metrics in 2014.
Alongside, Allstate struggles to stay afloat in the highly
competitive industry, which is marked by the escalated pricing
pressures and selective underwriting standards. The company also
faces challenges in the form of higher operating costs,
sluggishness in the Allstate brand homeowners and lower investment
returns. These factors continue to weigh on the margins and cash
Nonetheless, Allstate boasts of strong statutory capital levels
and decent liquidity profile. Consistent debt reduction and
refinancing as well as equity appreciation have helped improve the
total debt-to-capital resources ratio to 21.9% at Mar 2014-end from
22.4% in 2013 and 22.7% in 2012, consistently below ratings
agencies' benchmark of 24%. Higher deployable assets and
consistently growing operating return on equity (ROE) and book
value per share have also been supporting effective capital
deployment, thereby retaining shareholders' confidence.
Overall, an adverse risk-reward balance in the near term has
prompted downward estimate revisions for 2014 and 2015 in the past
30 days. The Zacks Consensus Estimate for 2014 and 2015 have moved
south by 4.9% and 0.5% to $4.90 and $5.66 per share, respectively.
On a year-over-year basis, earnings are expected to fall by 13.7%
in 2014 and then grow by 15.4% in 2015.
Key Picks in the Sector
Some better-ranked stocks in the insurance sector include
Hallmark Financial Services Inc.
AmTrust Financial Services Inc.
Endurance Specialty Holdings Ltd.
). All these stocks sport a Zacks Rank #1 (Strong Buy).
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ALLSTATE CORP (ALL): Free Stock Analysis Report
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