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Allstate Up 6% Post Q4 Earnings: Can it Sustain the Rally?

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The Allstate Corp. (ALL - Free Report) seems to in investors’ good books, as the stock gained following strong fourth-quarter results, wherein earnings beat estimates by 23%.

Following better-than-expected fourth-quarter earnings release on Feb 5, the stock gained 6.4% against its industry’s decline of 0.2%. The company's fourth-quarter earnings grew on a year-over-year basis, despite being saddled with huge catastrophe losses.

 

Factors Favoring the Stock

Increase in Premium: The company's property and liability business continues to be profitable owing to pricing discipline and strong claims management. In 2018, the same increased 6% year over year.

Favorable Combined Ratio: Combined ratio measures the profitability of an insurance company. Notably, the lower the figure the better it is. For Property-Liability business, the company’s combined ratio was 85.8%, which was better than the estimated range provided by the company at the beginning of the year (85-87%). For 2019, the Property-Liability business is expected to have an annual underlying combined ratio between 86% and 88%. It should be noted that a combined ratio below 100 signifies operating profitability.

Strong Capital Position: The company’s capital position remains strong, which led to total cash returned to shareholders of $2.8 billion in the full year of 2018. The company executed a $1-billion accelerated share repurchase program in the fourth quarter, as part of its $3-billion share repurchase authorization.

Acquisitions: Recent acquisitions such as InfoArmor, PlumChoice and Square Trade have complimented organic growth. These buyouts have diversified its business profile and aided revenue growth.

Will the Stock Gain Further?

Differentiated products, sophisticated analytics and use of telematics will help the company to grow its market share in the Property Liability business.

The company’s efforts to grow Protection business via expanding Life Insurance, Workplace Benefits, Protection Plans and Identity Protection should aid overall revenues and drive sustainable profitability. Thus, its progress on fundamentals should help the stock to continue with its rally in the coming quarters.

Zacks Rank and Other Stocks to Consider

Allstate currently carries a Zacks Rank #2 (Buy). Other stocks worth considering from the same space include Arch Capital Group Ltd. (ACGL - Free Report) , Cincinnati Financial Corp. (CINF - Free Report) and The Progressive Corporation (PGR - Free Report) .

While Arch Capital and Cincinnati Financial both carry a Zacks Rank #1 (Strong Buy), The Progressive holds the same Zacks Rank as Allstate. Each of these stocks surpassed earnings estimates in the last reported quarter by 24.3%, 22.5% and 567.7%, respectively.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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