Allstate Corporation ALL is poised to grow on the back of its well-performing property and liability segment. A number of initiatives undertaken by the company to improve profitability in the auto segment will also drive long-term growth. A strong balance sheet and intelligent capital management are other positives for the stock. The acquisition of SquareTrade, PlumChoice and InfoArmor will provide diversification benefits.
This Zacks Rank #2 (Buy) stock has witnessed a 0.4% upward revision in 2019 earnings estimates over the past seven days. The same for 2020 has moved 1% north over the past 30 days.
The stock carries 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 rallied 12.8% compared with its industry’s growth of 0.54%.
Factors That Make the Stock Lucrative
Strong Property-Liability Business Performance: The company's property and liability business continues to be profitable owing to pricing discipline and a strong claims management. It is also benefiting from the past acquisitions and growth in the emerging businesses, evident from a consistent increase in premiums for the past many years.
This trend continued in 2017, reflecting a 3.2% rise in net written premium. Moreover, the metric grew 6% in 2018. We expect the segment to continue adding to its top line, given a number of strategic initiatives undertaken for growth, such as product enhancements and changes in business mix to focus on those that command a high return on equity.
Burgeoning Service Business: The company is making concerted efforts to amplify its Service business profile, which provides nice diversification benefits. In this vein, it acquired SquareTrade in 2017 a, provider of protection plans for mobile phones, consumer electronics and appliances. Premium written from SquareTrade soared 81% in 2018.
Allstate also acquired PlumChoice in 2018, a leading provider of cloud and technical support services to consumers and small businesses. This buyout is expected to expand the company’s Service business, which generated 27% revenue growth in 2018.
Increasing Investment Income: After suffering a declining income in its investment portfolio for the past many years due to market volatility and low interest rates, the company is gradually gaining ground. Net investment income rose 11.8% in 2017 and 6.3% in 2018. The company has also lowered its exposure to growth-sensitive assets, which is likely to improve its investment portfolio’s risk profile.
Solid Balance Sheet and Efficient Capital Management: The company’s cash flow has been rising over the years. Management’s proactive risk mitigation and return optimization programs consistently raise the operating cash flow and add shareholder value.
Share Buyback and Dividend: Allstate’s disciplined capital management by means of share buyback and dividend hike is also impressive. Last October, the company announced $3 billion of share repurchase. This February, Allstate increased its quarterly dividend by 24%. Its current dividend yield of 2.2% is considerably higher than the industry’s 0.53%. We believe, the company’s financial strength will continue to instill investors’ confidence in the stock.
Strong ROE: The company’s ROE of 14% has bettered over the past couple of years and is steadily much higher than the industry’s 6.6% ROE. This in turn, reflects the company’s tactical efficiency in ustilizng its shareholders’ funds.
Other Stocks Worth Considering
Both Arch Capital Group Ltd. ACGL and Cincinnati Financial Corp. CINF sport a Zacks Rank #1 (Strong Buy) and have surpassed on earnings in three of the four reported quarters, the average positive surprise being 14.5% and 18.1%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Hallmark Financial Services, Inc. HALL has a Zacks Rank of 1 and its earnings beat estimates in each of the trailing four reported quarters, the average being 91.3%.
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