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Allstate Stock Gains on Revenue Growth, Solid Balance Sheet

Zacks Equity Research

The Allstate Corporation ALL, one of the leading players in the multiline insurance industry, has been benefiting from a favorable operating performance and a solid capital position.

The Zacks Consensus Estimate for its current-year earnings has been revised 28% upward over the past 30 days.

The stock is up 34% in a year’s time compared with the industry’s growth of 9.3%.

Allstate’s business strategy has been to increase market share in its traditional auto, home and life insurance products and newer offerings such as electronic device and identity protection. This implies increase in personal property liability market share and expansion into other protection businesses.

Allstate has been quite steadfast in using technology in its operations. The use of data analytics and telematics, and the launch of mobile application have helped the company to make informed decisions about which business to write and  settle the claims  faster.  

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 past acquisitions and growth in the emerging businesses, as evident from a consistent increase in premium written over the years. The trend continued in the first nine months of 2019 with revenues up 9.5%. We expect the increase in revenues to continue, given a number of strategic initiatives taken for growth such as product enhancements and changes in business mix to focus on those that command a high return on equity.

Allstate is making concerted efforts to expand its Protection business, which provides diversification benefits. In this vein, it acquired SquareTrade in 2017, a provider of protection plans for mobile phones, consumer electronics and appliances. The company also acquired PlumChoice in 2018, a leading provider of cloud and technical support services to consumers and small businesses. In February 2019, iCracked was acquired, which boosted the segment’s protection offerings.  These buyouts will expand its Protection business, which grew revenues by 26.3% in the first nine months of 2019.

The company also gains from its solid balance sheet position, with cash flow increasing over the years. Disciplined capital management by way of share buyback and dividend hike is also impressive. Its current dividend yield of 1.8% is considerably higher than the industry’s 0.43%. Allstate’s solid financial position also helped it earn investment grade rating from major rating agencies.

Allstate carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are First American Financial Corp. FAF, NMI Holdings Inc. NMIH and RLI Corp. RLI. Each of these stocks carries a Zacks Rank #1 (Strong Buy) and have surpassed estimates in each of the last four reported quarters by 12.2%, 8.39% and 154.9%, respectively.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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