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Allstate Continues to Prosper Despite Significant Cat Loss

Zacks Equity Research

The Allstate Corp. ALL has performed quite well despite facing multiple challenges owing to the recent natural calamities.

For the first nine months of 2017, this property and casualty insurer incurred $2.64 billion loss due to the catastrophe, up 16.1% year over year. However, Allstate bottom line grew a whopping 70% year over year. The upside might have been driven by revenue growth (3.7%), which was higher than rise in expenses (0.4%).

Also, the company surpassed the Zacks Consensus Estimate in the trailing four quarters with an average positive surprise of 57%.

What’s Buoying the Stock?

Allstate’s stellar performance was backed by decrease in the frequency of auto accidents and improved profitability in auto insurance, which reflects the profit improvement actions initiated in 2015.

Meanwhile, investments made for long-term growth in businesses such as Allstate Benefits, SquareTrade and its connected-car platform at Arity seems to be paying off, which is evident from an increase in the company’s current policies and higher premiums.

Also, the company is gradually gaining ground after suffering from declining income in its investment portfolio for the past many years due to market volatility and low interest rates. Net investment income rose 11% for the first nine months of 2017, reflecting higher performance-based results and stable income from market-based portfolios.

Bottom-line results also improved backed by Allstate’s share buybacks. Through the first nine months of 2017, the company repurchased 10 million shares or 2.7% of those outstanding at the beginning of the year. It further remains on track in executing the $2 billion repurchase program that was approved in August.

So far this year, the stock has gained 42% compared with the industry’s growth of 19.4%. Additionally,  the company scaled a 52-week high of $104.18 on Dec 13.

What to Expect?

Of late, Allstate incurred a loss of $516 million from the California wildfires. This, in turn, might dent the company’s underwriting results to some extent. However, its inherent business strength is expected to help Allstate emerge as a winner and deliver a positive earnings surprise once again.

The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 7.2% upward over the last 60 days. This also reflects analyst optimism about the company’s earnings performance.

Zacks Rank & Key Picks

Allstate holds a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same space are Mercury General Corp. MCY, NMI Holdings Inc. NMIH and ProAssurance Corp. PRA carrying the same bullish rank as Allstate. You can see the complete list of today’s Zacks #1 Rank stocks here

Mercury General beat the Zacks Consensus Estimate in each of the four reported quarters, with an average positive surprise of 5.2%.

NMI Holdings delivered a positive earnings surprise of 43% in the last reported quarter.

ProAssurance (PRA) posted better-than expected results in each of the four reported quarters, with an average positive surprise of 18%.

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