5 Reasons That Make Allstate (ALL) an Attractive Option
The Allstate Corp. ALL has been a beneficiary of the the shelter-in-pace restriction imposed to check the spread of COIVD-19 pandemic as irregular driving substantially decreased its claim costs.
The company 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 10.7% compared with its industry’s decline of 16.2%.
Factors That Make Allstate an Investor Favorite
Rising Premiums: The company's top line has been improving over the years owing to its broad product suite and pricing discipline. It is also benefiting from its past acquisitions and the strength in emerging businesses, evident from a consistent uptrend in premiums written over the years. We expect this top-line growth to be steady, given a slew of strategic initiatives taken, such as product enhancements and changes in business mix to focus on the areas 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, it again bought iCracked, 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 look impressive too as the same augments the usage of telematics via its Drivewise and Milewise products.
Strong Solvency Position: The company’s debt-to-equity ratio worsened 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 capital 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 its operating cash flow and add to shareholders’ funds. Disciplined capital deployment via share buybacks and dividend hikes are also appreciative.
Favorable ROE: Allstate’s trailing 12-month return on equity (ROE) reinforces its growth potential. The company’s ROE of 17.5% not only climbed over the past two years’ (2018 & 2019) levels but also surpassed the industry average of 6.5%. This reflects its efficiency in utilizing its shareholders’ money.
Recently, the company announced extension of its Shelter-in-Place Payback through Jun 30, 2020. This step was taken to refundcustomers a chunk of the company’s gains reaped from lower accident claims on personal auto policies, led by less driving on roads.
In light of the above tailwinds, the stock should perform encouragingly even though the company may endure greater severity per claim as the coronavirus-induced stay-at-home order caused massive driver scarcity on the road, thereby bumping up driving speeds immensely.
Key Picks
Some stocks worth considering from the same space are National General Holdings Corp. NGHC Kinsale Capital Group Ltd. KNSL and United Insurance Holdings Corp. UIHC. While National General currently sports a Zacks Rank #1 (Strong Buy), the other two stocks currently carry the same Zacks Rank as Allstate. You can see the complete list of today’s Zacks #1 Rank stocks here.
Both National General and Kinsale Capital Group’s earnings beat estimates in two of the last four quarters and missed the mark in the remaining two, the average positive surprise being 5.68% and 3.44%, respectively.
United Insurance beat on earnings in the last reported quarter by 40%.
These Stocks Are Poised to Soar Past the Pandemic
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The Allstate Corporation (ALL) : Free Stock Analysis Report
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