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Why Is Allstate (ALL) Down 4.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Allstate (ALL). Shares have lost about 4.3% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Allstate due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Allstate Incurs Q4 Loss Due to Underwriting Losses

Allstate incurred a fourth-quarter 2022 adjusted loss of $1.36 per share, narrower than the Zacks Consensus Estimate of a loss of $1.37. Notably, earnings of $2.75 per share were reported in the prior-year quarter.

The quarterly results suffered a blow from significant auto insurance underwriting losses, reduced net investment income and an elevated expense level.   

Operating revenues of Allstate amounted to $13,552 million, which rose 6.3% year over year. The top line beat the consensus mark by 8.5%. The improvement can be attributed to 9.5% year-over-year growth in earned premiums across its Property-Liability business.

Q4 Operations

Net investment income of Allstate dropped 34.2% year over year to $557 million due to a decline in performance-based investment income. Yet, market-based investment income advanced 27.8% year over year in the fourth quarter.

Total costs and expenses escalated 21.1% year over year to $14,067 million. The increase was mainly due to increased property and casualty (P&C) insurance claims and claims expenses, and amortization of deferred policy acquisition costs.

A pretax loss of $420 million was reported in the quarter under review against the prior-year quarter’s pretax income of $1,393 million.

As of Dec 31, 2022, total policies in force dipped 1% year over year to 189.1 million.

Allstate incurred catastrophe losses of $779 million, which escalated 47.5% year over year.

Segmental Performances

Property-Liability’s premiums earned of $11,380 million grew 9.5% year over year in the fourth quarter. The reported figure outpaced the Zacks Consensus Estimate of $11,175 million.

The segment recorded an underwriting loss of $1,035 million against the prior-year quarter’s underwriting income of $113 million. The underwriting loss stemmed from current report year auto claim severities, elevated catastrophe losses and unfavorable prior year reserve reestimates. The underlying combined ratio deteriorated 790 basis points (bps) year over year to 99.2% in the quarter under review.

Protection Services' revenues improved 6.1% year over year to $643 million, thanks to strength in Allstate Protection Plans and Allstate Dealer Services. Adjusted net income of $38 million advanced 31% year over year in the fourth quarter.

Allstate Health and Benefits’ total premium and contract charges came in at $435 million, which slipped 5.2% year over year and lagged the consensus mark of $451 million. The decline was due to weakness in individual health. Adjusted net income grew 4.2% year over year to $50 million in the quarter under review but fell short of the Zacks Consensus Estimate of $64 million.

Financial Update (as of Dec 31, 2022)

Allstate exited the fourth quarter with a cash balance of $736 million, which slid 3.5% from the figure in 2021 end. Total assets of $98 billion decreased 1.5% from the 2021-end level.

Debt amounted to $7,964 million, which dipped 0.2% from the figure as of Dec 31, 2021.  Total shareholders’ equity fell 30.6% from the 2021-end level to $17,475 million.

Book value per common share came in at $58.07 as of Dec 31, 2022, which tumbled 28.8% year over year.

The adjusted net income return on equity in the trailing 12-month period came in at a negative figure of 1.3%. The metric was recorded at 16.9% at the end of 2021.

Capital Deployment

Allstate rewarded its shareholders with $582 million via share buybacks of $354 million and dividends worth $228 million in the fourth quarter.

Full-Year Update

Allstate incurred an adjusted loss of 97 cents per share in 2022, while earnings of $13.48 per share were reported in 2021.

Consolidated revenues inched up 1.6% year over year to $51.4 billion. Net premiums earned of $43,909 million improved 8.5% year over year. Net investment income of ALL fell 27% year over year to $2,403 million

It reported an underwriting loss of $2,911 million, which compares unfavorably with the underwriting income of $1,665 million in 2021. The underlying combined ratio deteriorated 890 bps year over year to 95.1%.

Outlook

Management keeps an eye to implement additional rate hikes and underwriting actions within ALL’s auto insurance business in 2023.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -31.7% due to these changes.

VGM Scores

Currently, Allstate has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Allstate has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Allstate belongs to the Zacks Insurance - Property and Casualty industry. Another stock from the same industry, RenaissanceRe (RNR), has gained 5.3% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.

RenaissanceRe reported revenues of $1.84 billion in the last reported quarter, representing a year-over-year change of +29.1%. EPS of $7.33 for the same period compares with $4.71 a year ago.

For the current quarter, RenaissanceRe is expected to post earnings of $7.46 per share, indicating a change of +113.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +5.7% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #1 (Strong Buy) for RenaissanceRe. Also, the stock has a VGM Score of A.

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