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The Zacks Analyst Blog Highlights: Allstate, Ace, Travelers, White Mountains Insurance Group and Coach

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For Immediate Release

Chicago, IL – October 19, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Allstate Corp. , Ace Limited , The Travelers Cos. , White Mountains Insurance Group Ltd. and Coach, Inc. .

 

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Here are highlights from Thursday’s Analyst Blog:

Allstate Upped to Outperform

 

We have promoted Allstate Corp. with an ‘Outperform’ recommendation from ‘Neutral’ based on the significant improvement in its operating leverage given the radical reduction in catastrophe losses, claims and operating expenses.

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. Reported net income came in at $423 million or 86 cents per share, against a net loss of $624 million or $1.19 per share in the prior-year quarter.

Allstate is well positioned to be a long-term gainer in personal lines, given its scale, pricing sophistication and product design. The company’s disciplined underwriting approach and efficient operating expense management has led to a more consistent profitability compared to many of its peers such as Ace Limited and The Travelers Cos. . Moreover, the acquisition of Esurance and Answer Financial from White Mountains Insurance Group Ltd. is boosting online auto sales, thereby generating cost synergies.

Increased agency distribution has also enhanced unit sales at Allstate Financial. Moreover, Allstate’s Property-Liability segment –the primary revenue producing segment – continues to be profitable, despite above-average catastrophe costs, based on careful pricing discipline and strong claim management. On an immediate basis, Allstate is working vigorously to maintain standard auto margins, improve returns in homeowners and Allstate Financial and manage capital aggressively.

Further, proficient expense management, coupled with enhanced premiums, have improved the combined ratio, return on equity (ROE) and book value per share so far in 2012. Additionally, consistent profitability, efficient capital management, strong pricing discipline and claim management inject optimism for steady growth in the future. A healthy debt and capital position have also supported Allstate’s proactive risk mitigation and return optimization programs, while continuing to enhance its shareholder value.

The above-mentioned operating and business positives have also helped Allstate sustain healthy credit and debt ratings, all of which reflect a stable outlook. With an operational strategy that enables acclimatizing to changing market regulations, Allstate is well positioned to benefit from an improving economy.

On the flip side, Allstate’s property and casualty business is consistently exposed to uncertainty related to weather-related events, which has resulted in severe catastrophe losses in the past. Moreover, the ongoing capital market volatility and low-interest rate environment adversely affect the company’s investment portfolio.

As well, the company is experiencing deterioration in the Allstate brand homeowners and standard auto policies, given the negative impact of raising returns in homeowners insurance. These downsides have also hindered the growth in operating cash flow.

Based on these pros and cons, the Zacks Consensus Estimate earnings for Allstate is currently pegged at $1.08 per share, about 575% higher than 16 cents in the year-ago quarter. For 2012, earnings are projected to be $4.45 per share, drastically higher than $1.33 per share reported in 2011. In the last 30 days, 19 out 24 firms have revised their estimates upwards, while no downward revision was witnessed.

Additionally, the quantitative Zacks Rank for Allstate is currently “2”, indicating a short-term Buy rating. A slight upward pressure on the shares is expected over the near term.

 

 

Earnings Preview: Coach

 

Coach, Inc. , the designer and marketer of fine accessories and gifts and an S&P 500 company, is slated to report its first-quarter 2013 financial results on October 23, 2012.

The current Zacks Consensus Estimate of 75 cents a share for the quarter reflects a year-over-year growth of 2.7%. The estimates in the current Zacks Consensus range between a low of 71 cents and a high of 81 cents a share. Revenue, as per the Zacks Consensus Estimate, is $1,159 million for the quarter.

Fourth Quarter 2012, a Recap

Coach’s fourth-quarter 2012 earnings of 86 cents a share beat the Zacks Consensus Estimate by a penny, and increased 27% from 68 cents earned in the prior-year quarter buoyed by healthy top-line growth on the back of strong sales in China.

The New York based company reported net sales for the quarter at $1,155.2 million, up 12% from the year-ago quarter, but below the Zacks Consensus Estimate of $1,197 million.

Management remains confident of sustaining double-digit growth in both top and bottom lines in fiscal 2013.The company remains optimistic about its unisex Legacy lifestyle collection, dedicated Men's stores and international growth opportunities to counter the soft consumer scenario in North America and sluggish economic environment.

Coach’s Men’s business grew more than $400 million in fiscal 2012 on a global basis. Management anticipates Men's business to be a major growth driver, with 25% or more of the company's growth coming from it in the upcoming years.

(Refer the article: Coach Beats by a Penny)

Estimate Revisions Trend

Agreement

We do not see any major estimate revisions at this point. Only one out of 24 analysts covering the stock revised the estimate downwards in the last 7 and 30 days, and none raised the same for the first quarter of 2013. For fiscal 2013, one analyst moved up the estimate and 2 analysts lowered the same in the last 30 days. None of the analysts revisited their estimates in the last 7 days.    

Magnitude

No movement was noticed in the Zacks Consensus Estimates for the first quarter as well as for fiscal 2013 either in the last 7 or 30 days, and remained constant at 75 cents and $3.85 respectively. Most of the analysts remained constructive on the stock based on the company’s growth prospects and kept their estimates intact, in the absence of any major news having a direct or an indirect impact on the stock.

Positive Earnings Surprise History

With respect to earnings surprises, Coach topped the Zacks Consensus Estimates over the last four quarters in the range of a low of 1.2% to a high of 4.3%, with an average of 2.7%. This implies that Coach has outperformed the Zacks Estimates by the same magnitude over the last four quarters and we believe that the company will continue to post better-than-expected results in the coming quarters.

Our Take

Coach boasts of a proven strategy of investing in stores to enhance sales productivity through product innovation, compelling pricing strategy, new merchandise assortments and a cost-effective global sourcing model, which should drive comparable-store sales and operating margins in the long term.

The company’s long-term growth drivers include expansion of its global distribution model and entry into under-penetrated markets. The company lays more emphasis on globalization and accelerated international distribution growth.

However, Coach sells products that are discretionary in nature. Its customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn the company’s growth and profitability. Therefore, we remain concerned about erratic consumer behavior and a sluggish recovery in the economy.

Fashion obsolescence remains another concern for Coach’s business model, which requires sustained focus on product and design innovation. The company’s pioneer position may be compromised by delays in its product launches.

 

 

 

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