The Allstate Corp. (ALL - Free Report) looks well poised for growth despite the coronavirus-led economic weakness on the back of a number of strategic initiatives, which bode well for the long haul.
While the impact of coronavirus induced instability in the financial market as well as a decline in shareholders' equity, Allstate's diversified business model, substantial earnings capacity and a strong capital position enable it to steer clear of this panfdemic situation.
The stock has witnessed an upward revision of 1.4% in 2020 earnings estimates over the past seven days.
It has a Zacks Rank #2 (Buy) and an impressive Value Score of A. Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best opportunities in the value investing space.
Year to date, the stock has lost 17.7% compared with its industry’'s decline of 26.4%.
Factors That Make Allstate an Attractive Pick
Rising Revenues: The company's top line has been increasing over the years owing to its broad product suite and pricing discipline. It is also benefiting from the past acquisitions and strength in emerging businesses, evident from a consistent uptrend in premiums written over the years. The momentum continued in 2019 with 6% revenue rise year over year. We expect this top-line improvement to be consistent, given a slew of strategic initiatives taken, such as product enhancements and changes in business mix to focus on those that command a high return on equity.
Flourishing Service Business: The company is making concerted efforts to expand its Service business, which provides diversification benefits. To this end, it acquired SquareTrade in 2017, a provider of protection plans for mobile phones, consumer electronics and appliances. The company also purchased PlumChoice in 2018, a leading provider of cloud and technical support services to consumers and small businesses. In February 2019, iCracked was bought, which extended SquareTrade’s protection offerings. These buyouts will broaden the scope of the company’s Service suite, which drove revenues by 7.3% in 2019 and 18.2% in the first quarter of 2020.
The company’s efforts to ramp-up its transformative growth plan looks impressive, which include increase in the usage of telematics via its Drivewise and Milewise products.
Strong Solvency Position: The company’s debt-to-equity ratio rose slightly to 21.53 as of Mar 31, 2020 from 20.3 as of Dec 31, 2019. The same is also a bit higher than the industry’s average of 19.55%. But the company’s liquid securities valued at $8.8 billion are generally saleable within a week’s time, which in turn, provide a cushion to service its debt load amounting to $6.6 billion. Thus, its solvency status looks favorable.
Solid Balance Sheet and Efficient Capital Management: The company’s cash flow has been surging over the years. Management’s proactive risk mitigation and return optimization programs constantly enhance the operating cash flow and add to shareholders’ funds. Disciplined capital deployment by way of share buybacks and dividend hikes are also appreciative. In May 2019, Allstate raised its quarterly dividend by 8.7%. Its current dividend yield of 4.8% is considerably higher than the industry’s 0.7%. We believe, the company’s financial flexibility will steadily instill investors’ confidence in the stock. While several companies halted their share repurchases, Allstate plans to carry on with buybacks under its current $3-billion authorized program, which is expected to be completed by 2021 end.
Favorable ROE: Allstate’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 17.5% climbed over the past two years (2018 & 2019) and came above the industry’s average of 6.5%. This vouches for its efficiency in utilizing its shareholders’ money.
In light of the above tailwinds, the stock should perform encouragingly even though the company may endure greater severity per claim as the coronavirus-led stay-home dictum caused driver scarcity on the road, thereby bumping up driving speeds immensely. The company is also likely to incur additional bad debts from some customers who preferably opt for extended payment terms. On a longer-term basis, if the global auto parts supply chain gets disrupted or parts prices are raised by auto manufacturers, repair costs could flare up. The plaguing pandemic and the sluggishness in economy may also obstruct growth. If loss costs persistently remain below the prior-year level, the lower required rate increases may limit average premium growth.
Some stocks worth considering from the same space are National General Holdings Corp. (NGHC - Free Report) , The Progressive Corp. (PGR - Free Report) and United Insurance Holdings Corp. (UIHC - Free Report) , each carrying a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
National General’s earnings beat estimates in two of the last four quarters and missed in other two, the average positive surprise being 5.68%.
The Progressive’s bottom line topped estimates in three of the trailing four quarters and lagged in one, the average beat being 15.58%.
United Insurance beat on earnings in the last reported quarter by 40%.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, SherazMian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
Click Here, See It Free >>