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Allstate (ALL) Up 6.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Allstate (ALL - Free Report) . Shares have added about 6.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Allstate due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Allstate Incurs Q3 Loss Due to Weak Underwriting Results

Allstate incurred a third-quarter 2022 adjusted loss of $1.56 per share, narrower than the Zacks Consensus Estimate of a loss of $1.57. ALL reported earnings of 73 cents per share in the prior-year quarter.

Quarterly results were dampened by softer underwriting results, a decline in equity valuation, lower net investment income, and elevated costs and expenses.

Operating revenues improved 8.1% year over year to $13,375 million and beat our estimate of $12,227.6 million. Revenue growth came on the back of 9.8% year-over-year growth in earned premiums within its Property-Liability business. Earned premiums were aided by better average premiums in auto and home insurance business coupled with higher Protection Services revenues.

Q3 Operations

Total costs and expenses of $14,128 million escalated 15.3% year over year in the third quarter and came above our estimate of $12,983.3 million. The increase was due to higher property and casualty (P&C) insurance claims and claims expenses, and amortization of deferred policy acquisition costs and interest expenses.

Allstate incurred a pretax loss of $920 million against pretax income of $226 million in the prior-year quarter. Our estimate suggests a pretax loss of $918.1 million.

Total policies in force came in at 185 million as of Sep 30, 2022, slipping 3.6% year over year.

Net investment income dropped 9.7% year over year to $690 million, mainly due to a 23.3% decline in performance-based investment income. Yet, market-based investment income rose 14.2% year over year in the quarter under review.

Allstate incurred catastrophe losses of $763 million in the quarter under review, which plunged 39.9% year over year.

Book value per common share came in at $58.35 as of Sep 30, 2022, down 31% year over year.

Adjusted net income return on equity in the trailing 12-month period deteriorated 1,690 basis points (bps) year over year to 4.3%.

Segmental Performances

Property-Liability insurance premiums improved 9.8% year over year to $11,157 million. The reported figure beat the Zacks Consensus Estimate of $11,029 million.

The segment recorded an underwriting loss of $1,292 million in the third quarter, wider than the prior-year quarter’s loss of $534 million. The underlying combined ratio of 96.4% deteriorated 600 bps year over year.

Protection Services' revenues amounted to $640 million, which grew 7.2% year over year in the quarter under review. Strength in Allstate Protection Plans and Allstate Dealer Services contributed to the sound segmental performance. Adjusted net income of $35 million dropped 10% year over year. The figure lagged the consensus mark of $38.2 million but outpaced our estimate of $27.4 million.

Allstate Health and Benefits’ total premium and contract charges inched up 0.7% year over year to $463 million. Growth came on the back of a rise in group health and employer voluntary benefits. The reported figure fell short of the consensus mark of $468 million. Adjusted net income of $54 million soared 63.6% year over year in the quarter under review and missed our estimate of $66.4 million.

Financial Update (as of Sep 30, 2022)

Allstate exited the third quarter with a cash balance of $786 million, up 3% from the 2021-end level. Total assets of $97.7 billion slid 1.8% from the figure at the end of 2021.

Long-term debt amounted to $7,967 million, marginally down from $7,976 million at 2021 end. Total shareholders’ equity of $17,673 million declined 29.8% from the figure as of Dec 31, 2021.

Capital Deployment

Allstate rewarded its shareholders with $897 million in the form of share buybacks of $665 million and dividends worth $232 million. ALL has $1.2 billion left under its $5-billion buyback authorization.

Outlook

Management remains optimistic about the broad rate increases within ALL’s auto insurance business next year.  

The $5 billon-share repurchase program is expected to be exhausted post the first quarter of 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -31.55% due to these changes.

VGM Scores

At this time, Allstate has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Allstate has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Allstate belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, Cincinnati Financial (CINF - Free Report) , has gained 14.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

Cincinnati Financial reported revenues of $2.08 billion in the last reported quarter, representing a year-over-year change of +12.2%. EPS of $0.73 for the same period compares with $1.28 a year ago.

Cincinnati Financial is expected to post earnings of $1.26 per share for the current quarter, representing a year-over-year change of -36%. Over the last 30 days, the Zacks Consensus Estimate has changed -11.3%.

Cincinnati Financial has a Zacks Rank #5 (Strong Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.


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