Here's Why Hold Strategy is Apt for Allstate (ALL) Stock
The Allstate Corporation ALL is poised for growth on the back of a comprehensive product portfolio, reinsurance programs and solid cash flows.
The company has an impressive earnings surprise history. It has beat estimates in each of the trailing four quarters, the average surprise being 25.24%.
Allstate’s trailing 12-month return on equity (ROE) of 17.3% is higher than the industry’s average of 6.2%. This highlights the company’s tactical utilization of shareholders’ funds.
The Zacks Consensus Estimate for 2020 earnings per share indicates year-over-year improvement of 4.4%. The company has an impressive Value Score of A, which reflects an attractive valuation of the stock.
What’s Driving the Stock?
Allstate, whose primary line of business includes property and casualty insurance (P&C), remains well-poised for growth on the back of a comprehensive product portfolio and integrated distribution system that offers solutions according to the needs of each consumer segment.
In line with its endeavor to boost share in the personal property-liability space, Allstate offers auto insurance, which bodes well as the coronavirus pandemic compelled people to stay indoors that resulted in fewer cars on the road. This should benefit auto car insurers as they stand to gain from reduced loss costs, which aid their underwriting margins further.
Moreover, the company’s Transformative Growth Plan positions it well for reinforcing presence in the personal property-liability space. This plan is likely to result in incurring a restructuring charge with around $210-$220 million pretax to be recognized in the third quarter. Notably, it strives to extend the company’s customer access, enhance customer value and make substantial investments in the marketing and technology domain.
Furthermore, the company has ventured into offering life, accident and health insurance, and protection plans. It has been working closely with financial specialists to offer life and retirement solutions. A diversified product portfolio and pricing discipline has resulted in generation of higher premiums for the company. This is evident from revenues, which have witnessed a 10-year CAGR of 3.6%.
Being a P&C insurer, the company’s underwriting results have always been susceptible to catastrophe losses. Notably, Allstate purchases reinsurance coverage in a bid to provide protection against the catastrophe losses.
Additionally, the company’s strong cash flows have led to disciplined capital management strategies for returning shareholder value via share buybacks and dividend hikes. Its dividend yield of 2.3% is considerably higher than the industry’s 0.5%.
However, shares of this Zacks Rank #3 (Hold) company have lost 15.2% in a year compared with the industry’s decline of 4.8%.
The prevailing interest rates are likely to exert pressure on the company’s net investment income.
Further, the company estimates catastrophe losses for third-quarter 2020 at $990 million pretax. Nevertheless, we believe that the company’s strong fundamentals are likely to drive shares in the long run.
Stocks to Consider
Some better-ranked stocks in the insurance space include Fidelity National Financial, Inc. FNF, First American Financial Corporation FAF and Sun Life Financial Inc. SLF. While Fidelity National sports a Zacks Rank #1 (Strong Buy), First American and Sun Life carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fidelity National, First American Financial and Sun Life have a trailing four-quarter earnings surprise of 32.13%, 20.84% and 11.58%, respectively, on average.
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The Allstate Corporation (ALL): Free Stock Analysis Report
First American Financial Corporation (FAF): Free Stock Analysis Report
Sun Life Financial Inc. (SLF): Free Stock Analysis Report
Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.