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AllState's Fundamentals Strong, Low Interest Rate a Drag
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On Dec 28, we issued an updated research report on The AllState Corporation (ALL - Free Report) .
Shares of AllState have been underperforming the broader industry since the beginning of this year. In fact, the stock as gained 20.1% year to date, which is lower than the 22.5% gained by the Zacks categorized Property & Casualty (P&C) Insurance industry.
YTD PRICE CHART
Despite the unfavorable share price movement relative to the sector, AllState is well poised to retain shareholders’ confidence. Recently, the company took up certain growth initiatives and remains engaged in frequent investor-friendly activities like share buybacks and dividend payments.
The Illinois-based insurance company enjoys strong enterprise value as the second-largest Property and Casualty (P&C) insurer and the largest publicly held personal lines carrier in the U.S.
AllState’s steady growth is backed by its strong fundamentals that have helped it carve out a niche in the industry . Solid liquidity and commendable solvency have made the company financially flexible to make strategic investments. It has also been continuously improving its risk-adjusted capitalization and capital adequacy. Proactive risk mitigation and return optimization programs have helped AllState to enhance operating cash flow and shareholder value.
We note that the company’s strong revenue base has been supported by robust premium growth in its Property-Liability segment over the last few years. Pricing discipline and strong claim management have strengthened the segment’s potential for boosting the top line.
However, the persistently low interest rate has been adversely affecting the investment income of insurance players like Alleghany Corporation , NMI Holdings, Inc. (NMIH - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) , to name a few. AllState is no exception to this trend as it has also witnessed a year-overyear decline of 8.4% in its net investment income in the first nine months of 2016. However, with a recent hike in fed funds rate and three more hike expected for next year, we believe this headwind to subside.
The insurer is also exposed to high catastrophe losses. In the third quarter, the company earnings declined 17.1% on a year-over-year basis as catastrophe losses of $481 million that widened 78% year over year.
Another challenge faced by the company is the continued increase in auto accidents The company’s Allstate brand policies in force are witnessing a decline as it is intentionally curtailing new business until it sees improved returns on capital for auto insurance.
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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AllState's Fundamentals Strong, Low Interest Rate a Drag
On Dec 28, we issued an updated research report on The AllState Corporation (ALL - Free Report) .
Shares of AllState have been underperforming the broader industry since the beginning of this year. In fact, the stock as gained 20.1% year to date, which is lower than the 22.5% gained by the Zacks categorized Property & Casualty (P&C) Insurance industry.
YTD PRICE CHART
Despite the unfavorable share price movement relative to the sector, AllState is well poised to retain shareholders’ confidence. Recently, the company took up certain growth initiatives and remains engaged in frequent investor-friendly activities like share buybacks and dividend payments.
The Illinois-based insurance company enjoys strong enterprise value as the second-largest Property and Casualty (P&C) insurer and the largest publicly held personal lines carrier in the U.S.
AllState’s steady growth is backed by its strong fundamentals that have helped it carve out a niche in the industry . Solid liquidity and commendable solvency have made the company financially flexible to make strategic investments. It has also been continuously improving its risk-adjusted capitalization and capital adequacy. Proactive risk mitigation and return optimization programs have helped AllState to enhance operating cash flow and shareholder value.
We note that the company’s strong revenue base has been supported by robust premium growth in its Property-Liability segment over the last few years. Pricing discipline and strong claim management have strengthened the segment’s potential for boosting the top line.
However, the persistently low interest rate has been adversely affecting the investment income of insurance players like Alleghany Corporation , NMI Holdings, Inc. (NMIH - Free Report) and Arch Capital Group Ltd. (ACGL - Free Report) , to name a few. AllState is no exception to this trend as it has also witnessed a year-overyear decline of 8.4% in its net investment income in the first nine months of 2016. However, with a recent hike in fed funds rate and three more hike expected for next year, we believe this headwind to subside.
The insurer is also exposed to high catastrophe losses. In the third quarter, the company earnings declined 17.1% on a year-over-year basis as catastrophe losses of $481 million that widened 78% year over year.
Another challenge faced by the company is the continued increase in auto accidents The company’s Allstate brand policies in force are witnessing a decline as it is intentionally curtailing new business until it sees improved returns on capital for auto insurance.
Zacks Rank and Stocks to Consider
AllState presently carries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>