Back to top

Analyst Blog

Striding ahead with its proactive expansion approach, Allstate Corp. (ALL - Analyst Report) announced its plans to employ about 85 new insurance agencies across south-west of the US. The company plans to begin with the appointments by the end of the second half of 2012.

Accordingly, Allstate intends to increase its agency owners by 20 in Oklahoma, 30 in Phoenix, 15 in Nevada, and 10 each in Albuquerque and Salt Lake City. Earlier this year, the company had laid out its aim of appointing about 28 new agency owners in Michigan by the end of 2012, while about 140 were targeted to be employed across the primary locations of Connecticut, Maine, New Hampshire, Pennsylvania, Rhode Island and Vermont.

The recent surge in sales professionals along with the expansion of agency owners reflect the company’s capital efficiency, strong operating leverage and its focus to generate an operating return on equity (ROE) of 13% by 2014 through business growth and brand management. This also complements Allstate’s long-term growth strategy to reposition products and distribution platforms to meet the changing needs of consumers.

Earnings Review

Beginning this month, Allstate reported second-quarter 2012 operating earnings per share of 87 cents, which substantially exceeded the Zacks Consensus Estimate of 52 cents and the year-ago quarter’s loss of $1.24. Allstate’s net income for the reported quarter came in at $423 million or 86 cents per share, as opposed to a net loss of $624 million or $1.19 per share in the prior-year quarter, witnessing a stark improvement.

Results for the quarter reflected lower catastrophe losses, which further led to reduced claims expenses coupled with lower operating expenses and higher premiums. Expansions in emerging businesses and other personal lines along with higher investment income also benefited the results.

These were offset by lower realized capital gains and underperformance of Allstate Financial. Improved operating cash flow and prudent capital management also drove return on equity (ROE), book value per share and combined ratio.  

The Zacks Consensus Estimate for the third quarter of 2012 earnings is currently pegged at 78 cents, which is about 390% above the prior-year quarter’s earnings results. Of the 20 firms covering the stock, 10 revised their estimates upward in the last 30 days, while 6 downward revisions were witnessed. The upside potential for the second quarter currently stands at 2.56%.

Our Take

Overall, we believe that Allstate will persistently benefit due to its diversification, superior financial strength rating and tactical approach to investment. These factors have helped Allstate gain the second-largest personal lines writer position in the US, which also reflects its competitive strength against arch rivals such as Berkshire Hathaway-A (BRK.A - Snapshot Report) and The Travelers Companies (TRV - Analyst Report).

However, Allstate’s exposure to catastrophe risks, capital losses and volatility in pricing, interest and loss costs will continue to impact the premiums and investment portfolio in the upcoming quarters. Hence, we maintain a Neutral recommendation on Allstate for the long-term, with a Zacks Rank #3, which translates in to a short-term Hold rating.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
PLANAR SYST… PLNR 4.43 +4.86%
BITAUTO HOL… BITA 81.46 +4.80%
SOUTHWEST A… LUV 32.11 +2.78%
CHINA BIOLO… CBPO 47.64 +2.72%
SPIRIT AIRL… SAVE 72.99 +2.66%