Allstate: Reappraisal
The second-largest property-casualty insurer is increasing its profitability and cutting its exposure to catastrophes.
The 2005 hurricane season was a wake-up call for Allstate, the largest publicly held automobile and home insurer. The company racked up $5.7 billion in catastrophe losses during the 2005 hurricane season, the costliest in Allstate's 75-year history. But the Northbrook, Ill., company is on the mend and taking steps to control the impact of disasters on its balance sheet. Allstate, which sells insurance to more than 14 million households, is also increasing its profitability by improving auto insurance offerings, say analysts at Friedman, Billings, Ramsey Co. The Arlington, Va., investment-banking firm upgraded Allstate's rating to "outperform" on Thursday.
Allstate, the second-largest property-casualty insurer (behind State Farm), reported that profits in the first quarter of 2006 rose to $1.4 billion, 26% higher than the same period in 2005. The company also boosted its earnings guidance for the year, to a range of $6 to $6.40 per share, compared with a previously announced range of $5.60 to $6.00 per share. The stock (symbol ALL) jumped 6%, to $55, after the earnings announcement and upgrades by four analysts.
Personal auto and homeowner insurance make up more than 75% of Allstate's sales. During a conference call on Wednesday, chairman and chief executive officer Edward Liddy reiterated the company's plans to continue cutting its exposure to catastrophes by reducing coverage in areas that are at high risk for hurricanes and earthquakes, including California.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Meanwhile, the company's auto insurance business looks "increasingly more profitable," says the FBR report. A new program called Your Choice Auto looks especially promising, says FBR. The program, which offers more customized insurance options, is currently available in 38 states and the District of Columbia. In the first quarter of 2006, about two-thirds of new policies issued were through Your Choice. Almost half of those customers chose higher-priced coverage than the coverage in standard policies.
Allstate is also aggressively buying back its shares, a sign that the company thinks the market has discounted its share price too heavily. At $55, Allstate trades at nine times estimated 2006 profits of $6.34 per share, according to Thomson First Call. During the first quarter of 2006, Allstate repurchased 8.5 million shares for $454 million, leaving a little over $1 billion left in the current buyback plan. "We view this repurchase program as highly positive for the company," says FBR. Its analysts think the shares are worth $59 to $67. In addition, the stock yields an above-average 2.7%.
--Katy Marquardt
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Get These 40 Earth Day Deals and Discounts
Monday, April 22, is Earth Day. Many of your favorite retailers are celebrating with deals on sustainable products, recycling services, and more
By Kathryn Pomroy Published
-
Stock Market Today: Nasdaq Spirals as Netflix Nosedives
A big earnings boom for credit card giant American Express helped the Dow notch another win.
By Karee Venema Published
-
Stock Market Today: S&P 500, Nasdaq Extend Losing Streaks
The two indexes have closed lower for five straight sessions.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut Warning
The main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
By Karee Venema Published
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields Spike
A good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
By Karee Venema Last updated
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks Rise
Strength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
By Karee Venema Published
-
Stock Market Today: Stocks Tumble After a Hot Inflation Print
Equities retreated after inflation data called the Fed's rate-cut plans into question.
By Dan Burrows Published
-
Stock Market Today: Stocks End Mixed Ahead of Key Inflation Reading
Equities struggled before tomorrow's big Consumer Price Index report.
By Dan Burrows Published