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On Mar 25, 2013, shares of Allstate Corporation (ALL - Free Report) hit a 52-week high of $49.00. Previously, the company had reported solid fourth-quarter results with a positive earnings surprise of 942.9%. Allstate witnessed positive earnings surprises in all the 4 quarters of 2012, with an average beat of 265.98%. Further the company has been delivering positive earnings surprise for the past 8 quarters.

On Feb 6, Allstate reported fourth-quarter 2012 operating earnings per share of 59 cents, which significantly exceeded the Zacks Consensus Estimate of a loss of 7 cents. However, results lagged the year-ago quarter’s earnings of $1.45 a share.

The company remains focused to mitigate risks and improve financials. The company initiated an active role in reducing future catastrophe losses through the establishment of an Enterprise Risk and Return Management (ERRM) system, which also aided the improvement of combined ratio in 2012.

Further, in 2012 Allstate’s investment portfolio appreciated 1.8% year over year to $97.28 billion which boosts the operating cash flow and liquidity.

Allstate has a strong capital management policy. In 2012, the company deployed $910 million to repurchase 26.7 million shares. In addition, the company sought to gain investor confidence by authorizing a $1 billion share repurchase program and a 13.6% hike in its quarterly dividend to 25 cents from the prior payout of 22 cents.

During its fourth-quarter earnings release, Allstate guided its combined ratio for 2013 to be in the range of 88%–90%. The company expects to maintain profitability in the auto business and improve homeowners’ profitability.  

We expect the dividend increment and expanded share buybacks to bolster Allstate’s bottom line going forward. The overall long-term expected earnings growth rate for this stock is 8.3%.

Valuation looks attractive for Allstate. The shares are trading at a discount to the peer group average, both on a price-to-book basis and forward price-to-earnings basis, with return on equity remaining 15.1% above the peer group average. The 1-year return from the stock is 49.7%, much above S&P 500’s return of 11.8%.   

Allstate currently carries a Zacks Rank #2 (Buy). Other stocks in this industry such as Cincinnati Financial Corporation (CINF - Free Report) , EMC Insurance Group Inc. and Arch Capital Group Ltd. (ACGL - Free Report) carry a favorable Zacks Rank #1 (Strong Buy) and appear impressive.

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