We are upgrading our recommendation on Allstate Corp. (ALL) to Outperform based on significant reduction in catastrophe losses, claims and operating expenses coupled with enhanced premiums that improved the combined ratio, ROE and book value per share so far in 2012. Also, these factors aided the company's second quarter earnings upbeat, substantially outpacing the Zacks Consensus Estimate.
An appreciated investment portfolio boosted the operating cash flow and liquidity. The agency expansions, ratings affirmation, dividend increment, product restructuring and acquisitions validate Allstate's long-term stability. However, initiatives to improve auto and homeowners margins are yet to show effective results, whereas interest volatility poses risks to Allstate Financial's margins.
Though the current volatile economy will continue to impact results, continued synergies are expected from Allstate's industry-leading position, diversification and pricing discipline. All these should augur growth once the markets regain momentum.
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