Allstate (ALL) To Report Q4 Earnings: What's In The Cards?

Allstate Corp.’s (NYSE:ALL) fourth-quarter earnings will be reported on Feb 5, after market close. The company is expected to witness an increase in insurance premium written in its property and casualty business, and higher revenues from its service business, partly offset by loss caused by catastrophes.

Factors Affecting Q4 Results

Allstate’s property and casualty business should continue to see growth in premium due to increase in pricing and decline in auto claim frequency along with new client growth and higher retention. The company’s use of telematics, analytical expertise, differentiated products and brands should aid the growth of this business. The segment’s premium written has witnessed a CAGR of 3.5% from 2013-2017, which further grew 5.8% in the first nine months of 2018.

Allstate’s expansion of its Service business also bodes well for its overall growth. The recent acquisition of Square (NYSE:SQ) Trade, provider of protection plans for mobile phones, consumer electronics and appliances, should led to revenue growth in the to-be reported quarter.

In 2018, Allstate acquired InfoArmor, the leading provider of employee identity protection, which should aid its Benefit business that currently services nearly 4 million employees. Given the increasing risk of identity theft, this business should continue to see an increase in demand for its products.

Further, an increase in interest rates resulting in higher yields has benefited the company’s net investment income. The company has lowered its exposure to growth-sensitive assets, which should improve the risk profile of its investment portfolio. The increasing interest rate scenario should continue to favor the company’s investment income in the fourth quarter.

The company’s disciplined capital management by way of dividend payout and share buyback has also aided bottom-line growth and the same should continue in the fourth quarter.

However, catastrophe losses, might limit Allstate's fourth-quarter earnings. Total loss for October and November is estimated at around $887 million pretax or $701 million after tax. The company expects to record an additional pension settlement loss, based on current market conditions, of approximately $100 million to $125 million, pre-tax, in the fourth quarter of 2018, within the Corporate and Other segment.

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimates in three of the trailing four quarters, with an average positive surprise of 18.6%. This is depicted in the chart below:

The Allstate Corporation Price and EPS Surprise

Here’s What Our Quantitative Model Predicts

Our proven model does not conclusively show that Allstate is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP: Allstate has an Earnings ESP of -8.49%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Allstate currently carries a Zacks Rank #3, its Earnings ESP -8.49% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Kinsale Capital Group, Inc. (NASDAQ:KNSL) is set to report fourth-quarter 2018 results on Feb 21. The company has an Earnings ESP of +9.76% and a Zacks Rank #3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Radian Group Inc. (NYSE:RDN) has an Earnings ESP of +3.03% and a Zacks Rank of 1. The company is set to release fourth-quarter earnings on Feb 8.

Lincoln National Corp (NYSE:LNC) has an Earnings ESP of +0.45% and a Zacks Rank #3. The company is expected to report fourth-quarter earnings results on Feb 6.

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