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5 Reasons Why Allstate (ALL) Stock is an Attractive Pick Now
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The insurance industry is well poised for growth on a gradually stabilizing operating environment, Fed rate hikes and benefits of the tax overhaul position. Taking these factors into consideration it will be a prudent move to add a few stocks from the industry to your portfolio now. Based on its underlying strength and good growth prospects, The Allstate Corp. (ALL - Free Report) stock seems to be a solid bet now.
The company’s Zacks Consensus Estimate for current-year earnings has been revised 6.2% upward over the past 60 days, indicating analysts’ optimism about its earnings growth potential. It is further stressed by the stock’s Zacks Rank of 2 (Buy).
Here are a few other factors that make the stock a lucrative investment option.
Consistent Increase in Revenues: Allstate’s revenues have witnessed a CAGR of 2.8% over the last six years (2011-2017). We expect increase in revenues to continue driven by the strategic initiatives taken for growth. These initiatives include product enhancements, revenue -diversification from the acquisition of SquareTrade, and changes in business mix to focus on those that command a high return on equity.
Poised to Gain From Increase in Interest Rates: The company is gradually gaining traction of late after years of declining income in its investment portfolio. Net investment income rose 11.8% in 2017, reflecting higher performance-based results and stable income from market-based portfolios. The same was up 5.1% in the first quarter of 2018. We expect further improvement in investment income with an increase in interest rates.
Low Tax Rate to Drive Growth: In 2018, the company anticipates a corporate tax rate of 19% to 20% compared with its historical effective tax rate in the low 30%. The company is taking advantage of lower taxes to increase growth, enhance the employer value proposition, and raise shareholders’ returns. It will be investing in marketing, distribution, telematics, new products and technology to expand in many of its markets.
Strong Balance Sheet and Efficient Capital Management: The company’s free cash flow has been increasing over the years. Management’s proactive risk mitigation and return optimization programs continue to enhance operating cash flow and shareholder value. Disciplined capital management by way of share buyback and dividend hike is also impressive. In February, Allstate increased quarterly dividend by 24%. Its current dividend yield of 1.95% is considerably higher than 0.48% for the industry.
Strong ROE: Further, Allstate’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 14.6% has improved over the past two years and remains way higher than the ROE of 4.9% for the industry, reflecting its tactical efficiency in utilizing shareholders’ funds.
Does Allstate Make A Good Investment Option?
The answer is “yes”, here’s how. Year to date, shares of the company have lost 11.4% compared with the industry's decline of 1.3%. The company's strong fundamentals should favor it in the coming quarters. The upward revision in Zacks Consensus Estimate for current-year earnings reflects analysts’ optimism on the stock. Moreover, it is significantly undervalued and currently trading at a forward 12-month price-to-earnings ratio of 10.5, which compares unfavorably with the industry P/E ratio of 26.5. Given that the stock is trading at low valuation levels, it provides an attractive investment opportunity.
Also the stock carries an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.
HCI Group beat estimates in three of the trailing four quarters with an average positive surprise of 1.57%.
Alleghany surpassed estimates in three of the trailing four quarters with an average positive surprise of 17.6%.
NMI Holdings beat estimates in three of the trailing four quarters with an average positive surprise of 24.6%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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5 Reasons Why Allstate (ALL) Stock is an Attractive Pick Now
The insurance industry is well poised for growth on a gradually stabilizing operating environment, Fed rate hikes and benefits of the tax overhaul position. Taking these factors into consideration it will be a prudent move to add a few stocks from the industry to your portfolio now. Based on its underlying strength and good growth prospects, The Allstate Corp. (ALL - Free Report) stock seems to be a solid bet now.
The company’s Zacks Consensus Estimate for current-year earnings has been revised 6.2% upward over the past 60 days, indicating analysts’ optimism about its earnings growth potential. It is further stressed by the stock’s Zacks Rank of 2 (Buy).
Here are a few other factors that make the stock a lucrative investment option.
Consistent Increase in Revenues: Allstate’s revenues have witnessed a CAGR of 2.8% over the last six years (2011-2017). We expect increase in revenues to continue driven by the strategic initiatives taken for growth. These initiatives include product enhancements, revenue -diversification from the acquisition of SquareTrade, and changes in business mix to focus on those that command a high return on equity.
Poised to Gain From Increase in Interest Rates: The company is gradually gaining traction of late after years of declining income in its investment portfolio. Net investment income rose 11.8% in 2017, reflecting higher performance-based results and stable income from market-based portfolios. The same was up 5.1% in the first quarter of 2018. We expect further improvement in investment income with an increase in interest rates.
Low Tax Rate to Drive Growth: In 2018, the company anticipates a corporate tax rate of 19% to 20% compared with its historical effective tax rate in the low 30%. The company is taking advantage of lower taxes to increase growth, enhance the employer value proposition, and raise shareholders’ returns. It will be investing in marketing, distribution, telematics, new products and technology to expand in many of its markets.
Strong Balance Sheet and Efficient Capital Management: The company’s free cash flow has been increasing over the years. Management’s proactive risk mitigation and return optimization programs continue to enhance operating cash flow and shareholder value. Disciplined capital management by way of share buyback and dividend hike is also impressive. In February, Allstate increased quarterly dividend by 24%. Its current dividend yield of 1.95% is considerably higher than 0.48% for the industry.
Strong ROE: Further, Allstate’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 14.6% has improved over the past two years and remains way higher than the ROE of 4.9% for the industry, reflecting its tactical efficiency in utilizing shareholders’ funds.
Does Allstate Make A Good Investment Option?
The answer is “yes”, here’s how. Year to date, shares of the company have lost 11.4% compared with the industry's decline of 1.3%. The company's strong fundamentals should favor it in the coming quarters. The upward revision in Zacks Consensus Estimate for current-year earnings reflects analysts’ optimism on the stock. Moreover, it is significantly undervalued and currently trading at a forward 12-month price-to-earnings ratio of 10.5, which compares unfavorably with the industry P/E ratio of 26.5. Given that the stock is trading at low valuation levels, it provides an attractive investment opportunity.
Also the stock carries an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best opportunities in the value investing space.
Other Stocks to Consider
Some other stocks worth considering in the same space are Alleghany Corp. , HCI Group, Inc. (HCI - Free Report) , and NMI Holdings Inc. (NMIH - Free Report) . Each of these stocks carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
HCI Group beat estimates in three of the trailing four quarters with an average positive surprise of 1.57%.
Alleghany surpassed estimates in three of the trailing four quarters with an average positive surprise of 17.6%.
NMI Holdings beat estimates in three of the trailing four quarters with an average positive surprise of 24.6%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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