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On Mar 14, we reiterated our recommendation on Allstate Corp. (ALL - Analyst Report) to Outperform based on substantial improvements in its fundamentals, which paves the way for healthy capital deployment.

Why the Retention?

On Feb 6, Allstate reported fourth-quarter 2012 operating earnings per share (EPS) of 59 cents, which significantly exceeded the Zacks Consensus Estimate of a loss of 7 cents. However, EPS lagged the year-ago quarter’s earnings of $1.45 a share. Net revenue climbed 3.8% year over year to $8.55 billion and substantially topped the Zacks Consensus Estimate of $7.26 billion.

Allstate witnessed quite a boost over the last 60 days, signifying noticeable growth ahead. The Zacks Consensus Estimate for 2013 rose 2.4% to $4.62 per share, whereas for 2014, it grew 3.3% to $5.06 per share. Meanwhile, the Most Accurate Estimate for Allstate’s 2013 earnings stands at $4.63, resulting in a positive ESP (read: Zacks Earnings ESP: A Better Method) of +0.22%.

Consequently, with the Zacks Consensus Estimates for both 2013 and 2014 showing steady upward pressure on the stock in the near term, Allstate now has a Zacks Rank #1 (Strong Buy).

What is the cause for the strong positive bias on the company? Strong fourth quarter results despite the huge catastrophe losses, the agency expansions, healthy ratings affirmation, the latest 13.6% dividend increment, expanded share buyback, product restructuring and acquisitions validate Allstate’s long-term stability.

An appreciated investment portfolio also boosts the operating cash flow and liquidity, reflected by an improved operating return on equity (ROE) of 12.4% at 2012-end against 3.8% at 2011-end.

Though the current volatile economy and the catastrophe losses will continue to impact the results in the upcoming quarters, continued synergies are expected from Allstate’s industry-leading position, diversification and pricing discipline. All these factors should augur growth once the markets regain momentum.

Other Stocks to Consider

Apart from Allstate, other stocks that are outperforming in the insurance sector include Aegon NV (AEG - Snapshot Report), XL Group Plc (XL - Analyst Report) and Amerisafe Inc. (AMSF - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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