Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Allstate Strong on Higher Premiums, Balance Sheet Strength

Published 09/03/2020, 01:26 AM
Updated 07/09/2023, 06:31 AM

The Allstate Corp. ALL looks well-poised for growth despite the coronavirus-led economic weakness on the back of a number of strategic initiatives, which bode well for the long haul.

Allstate's diversified business model, substantial earnings capacity and strong liquidity enable it to manage operations effectively through this pandemic.

The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 16.3% upward over the past 30 days.

The stock currently has a Zacks Rank #2 (Buy) and an impressive Value Score of A. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2, offer the best opportunities in the value investing space.

The company's top line has been increasing over the years owing to its broad product suite and pricing discipline. It is also benefiting from past acquisitions and growth in the emerging businesses, evident from a consistent increase in premiums written over the years. In the first six months of 2020, premiums written were up 2.3% year over year. We expect revenue growth to continue, given a number of strategic initiatives taken, such as product enhancements and changes in business mix to focus on those that command a high return on equity.

Allstate is on course to acquire National General Holdings (NASDAQ:NGHC) Corp. The deal win will advance its strategy to increase its market share in the personal property-liability space, which will likely inch up 1%. The acquisition will be accretive to the industry player’s earnings per share and ROE, thereby reflecting its significant cost synergies. The company expects a high single-digit earnings accretion in the first year post closure of the transaction. It also anticipates the ROE accretion of approximately 100 bps, mirroring the entity’s substantial cost efficiencies.

Allstate is making concerted efforts to expand its Service business, which provides diversification benefits. In this vein, it acquired SquareTrade in 2017, a provider of protection plans for mobile phones, consumer electronics and appliances. The company also purchased PlumChoice in 2018, which is a leading provider of cloud and technical support services to consumers and small businesses. In February 2019, iCracked was bought, which expanded SquareTrade’s protection offerings. These buyouts will extend the company’s Service business, which saw 7.3% revenue growth in 2019 and a further 13.7% uptick during the first six months of 2020.

Allstate’s cash flow has been increasing over the years. Disciplined capital deployment through share buybacks and dividend hikes is also impressive. Over the past year, the company has repurchased 5.2% of outstanding shares. In February this year, Allstate raised its quarterly dividend by 8%. Its current dividend yield of 2.3% is considerably higher than the industry’s average of 0.4%. We believe, the company’s financial strength will continue to instill investors’ confidence in the stock.

Its trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 17.5%, which has increased over the past two years (2018 & 2019), remains way above the industry’s reading of 6.5%, thereby reflecting its efficiency in utilizing its shareholders’ funds.

Year to date, the stock has lost 16% compared with the industry's decline of 5.3%.

Some other stocks worth considering are Dongeal Group Inc. DGICA, First American Financial (NYSE:FAF) Corp. FAF and Fidelity National Financial (NYSE:FNF) Inc. FNF, each stock currently sporting a Zacks Rank of 1.

Earnings of both Fidelity National, First American and Dongeal Group beat estimates in each of the trailing four quarters, the average being 32.13%, 20.84% and 86.44%, respectively.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft (NASDAQ:MSFT) in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Allstate Corporation (NYSE:ALL): Free Stock Analysis Report

First American Financial Corporation (FAF): Free Stock Analysis Report

Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report

Donegal Group, Inc. (NASDAQ:DGICA): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.