Allstate (ALL) Hits 52-Week High: Is Further Upside Left?

Allstate Corp. ALL has been in favor with investors, apparent from its bullish run on the bourses. The stock hit a new 52-week high of $109.55 on Sep 24, before closing the session a tad lower at $107.76.

Notably, shares of the company have gained 9% in a year’s time against the industry’s decline of 2%.

Allstate carries a Zacks Rank #2 (Buy) and 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 (Strong Buy) or 2 offer the best opportunities in the value investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.

Driving Factors

Strong Property-Liability Business Performance: The company's property and liability business continues to be profitable owing to pricing discipline and strong claims management. It is also benefiting from past acquisitions and growth in emerging businesses as reflected from a consistent increase in earned written for the past many years. The trend continued in the first six months of 2019, which saw a 6% increase in net written. 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.

Also, its combined ratio, which measures the profitability of an insurance company, (the lower the better) has improved to 93.6% in 2019 from 96% in 2018. This reflects the company’s good control on its claims cost as well as other expenses. Though it is exposed to catastrophic losses, it has covered itself well by the use of reinsurance to face deal with these losses.

Growing Service Business:  The company is making concerted efforts to expand its Service 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. It 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 in this segment, which will expand SquareTrade’s protection offerings.  These buyouts will expand its Service business, which grew premiums by 6.5% in the first half of 2019.

Decline in Leverage: The company’s debt-to-equity ratio has moderated to 27% from 30% in 2013. Times interest earned, a ratio that measures the company’s ability to pay its interest expenses is 11, better than the industry average of 10.7. A decline in leverage strengthens the company’s balance sheet and reduces financial risk.

Strong Balance Sheet and Efficient Capital Management: The company’s cash flow has been increasing over the years. Management’s proactive risk mitigation and return optimization programs continue to enhance operating cash flow and shareholder value. Its disciplined capital management by way of share buyback and dividend hike is also impressive.  In February, Allstate increased its quarterly dividend by 24%. Its current dividend yield of 2.2% is considerably higher than 0.53% for the industry. We believe the company’s financial strength will continue to inspire investors’ confidence in the stock.

Other insurers that hit a 52-week high on the same day were Hanover Insurance Group Inc. HIG, Everest Re Group Ltd. RE and CNA Financial Corp. CNA.

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The Hartford Financial Services Group, Inc. (HIG) : Free Stock Analysis Report
 
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