Should I buy shares in Allstate? And if so, when is the right time to buy Allstate stock?
Stock Name and Trading Stock Exchange Platform
The Allstate Corporation – New York Stock Exchange (NYSE: ALL)
The Stock Sector
Allstate is a US insurance provider, that operates through its subsidiaries offering;
- Property and casualty insurance;
- Auto insurance;
- Home insurance;
- Business insurance;
- Renters insurance, and a variety of other insurance products.
Allstate was founded in 1931 and is headquartered in Illinois, in the US. It emanated from Sears which it was previously part of until 1995 when Allstate became a separate company.
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Allstate operates mainly in America and Canada. The company operates through four major segments namely;
- Allstate Protection;
- Protection services;
- Allstate Life; and;
- Allstate Benefits.
Allstate utilizes many channels to sell its products including;
- Financial specialists;
- Online; and;
- Mobile applications and et cetera.
Allstate ranks among the top 100 on the Fortune 500 list. It is a colossally large corporation with more than 54,000 employees as per the latest figures.
Recent News Relating to Allstate
Allstate is resurfacing stronger from the covid-19 recession experienced in 2022, during which it laid off a tone of employees, to the tune of 3,800 people, accounting for nearly 8% of its workforce.
Allstate insurance is rising fast to new peaks in recent months and has heavily rehired.
Allstate is undergoing restructuring to shut down all its life annuities in order to focus on being a pure auto insurer.
The Allstate company has been long contemplating this move and they finally exited at the end of March 2022. A key argument for the move is the surging inflation.
Allstate also recently released their Q4 earnings in February 2022. The results were rather grim, with a 50% drop in net income being registered.
This has been attributed to increased claims arising from automobiles accidents. They however beat the EPS and revenue estimates.
Allstate has performed better since the release of the earnings report and rose significantly. Their shares were down yesterday compared to the overall market.
Allstate has made management changes, announcing the appointment of Bob Toohey as the executive vice president and chief human resource officer.
Allstate have also raised auto rate rates (5.1%) due to rising inflation, it seeks to mitigate losses.
Current Position of Allstate
Allstate is standing tall at the moment with a market cap of $39.14. This is an all-time high level that was achieved this year. Allstate has seen a rough period trying to get back from the pandemic hit. They have been resilient and they have done quite well.
Considering insurance companies do not sell actual products but only sell money, it is a difficult business, especially in a low-interest-rate environment and high quantitative easing.
Allstate has the leverage of pricing power which it has utilized of late in raising rates. It is also a prudent underwriter and is very well acquainted with the sector.
The main competitors of Allstate include;
- Mercury General corporation;
- Erie, Insurance;
- Peoples Bancorp Inc; and big-time rivals;
- State Farm Insurance.
The biggest problem for insurance companies is growth. This is especially true for Allstate as it depends on the declining captive agent channel.
Catastrophic events like the tornadoes recently witnessed in the US pose a huge challenge to insurers. Allstate has been positive on the matter and is encouraging affected people to file insurance claims.
The company’s equity holdings face evident risk from market volatility. Their loss ratio has been rising which is bad for them as it indicates more claims.
Allstate has relative strengths that galvanize its position. It has a sound balance sheet, fair capital investment decisions, and an appropriate capital return strategy. Allstate has high retention rates even whilst it raises its premiums.
Allstate insurance also has a reliable track record and handsomely compensates its shareholders, sometimes up to 27% of its income.
(See Allstate Stock Price Chart at the end of this article)
Allstate closed the day at $140 per share yesterday, 28 March 2022. It is trading at record high prices, but the share price slumped by-0.38%, dropping more than its competitors.
Its previous close last week was at $141.79 which marked its all-time high. Allstate is trading at a day range of between $139.8 – $141.5.
The volume of shares traded is now at around 2.48M. Allstate has traded at a yearly low of $106. The stock is looking very impressive in hindsight.
Allstate insurance company is up by +4.45% in the past week and +14.91% in the past month. It is up by +8.71% in the past months and +20.38% in the past year.
These are the typical returns from a traditional finance company showing good moderate growth over time, nothing out of the ordinary.
It has leaped by +72% over the last five years thus an adequate return to its long-term shareholders.
The Allstate company seems from one angle, undervalued at the moment because it is predicted to skyrocket due to market conditions, and it has been averagely low, but is now looking to improve.
It is however, of some concern that, with hyperinflation, the cost of products rising and this will roll over to the company in terms of repairs and purchasing Auto spares.
Some compute the fair value in relation to margin safety and project it to be about $188, thus anticipating the stock to surge.
This valuation does not sufficiently give the full picture and does not consider the sovereign and fundamental factors. The statement, ‘bigger they are the harder they fall’, best sums up the current market situation.
The share price is unprecedented and will likely level off.
Sentiment re Allstate
Some market experts believe that, despite high prices in the market, growth has equally been experienced and the soaring share prices will continue.
Although the bubble exists, the existence of a bubble does not guarantee it will burst. In other words, the markets can remain irrational for longer than you can remain solvent.
The bull should have crashed by now in a free market, but it continues to be pumped up thus getting bigger. Insurance funds were part of the cause of the financial recession. They have however managed to still grow today.
If this continues, the insurance industry will flourish, but at the expense of the masses. Developments in the Russian-Ukraine conflict will have no major impact on US insurers.
However, investors should be mindful of the cyber insurance markets, as cyber security poses significant threats to the world economy. There is also an elevated demand for insurance catalyzed by catastrophes and rising rates.
Businesses also want to hedge against an uncertain future and the equities market looks rather volatile. Growth is assured for the core business insurance, but not so much for their stocks.
This stems from the fact that business should drive growth in the equities market and not the other way round which is currently happening.
Profits for Allstate
Allstate has for a long time been a gem for its investors in terms of gains. But this has slowed down in recent years. Revenue increased by a nice +18.69% in Q3 2021, recorded at $13.01B for the quarter. Total annual revenue was a good $50.6B, a +20% year-on-year increase.
Net income for the whole year was $790M. The Combined ratio for the company was at 104.3 signifying they paid way more in claims and business expenses. This was attributed to inflation and increased accidents.
The company thus made no profits for the quarter. The net profit margin for the year was at 6.28%, a plunge of-73.787% year on year. They however had a dividend yield of 2.42%.
It had a P/E of 7.67 and a P/B of 1.7. The P/S ratio was at 0.83. The debt-to-equity ratio is good at a very low 0.33.
Their cash and equivalents increased by +143%, recorded at $763M. Allstate have done well but they can do better to make up for the decline.
Future of Allstate
Allstate is a dependable provider that is well known in the market. Institutional investors like Blackrock, Vanguard group, and other large financial firms account for over 75% of its total ownership.
The rest is owned by insiders and the general public.
Allstate has a combined $90.7B worth of total assets. They have a 24% return on equity and a 14% return on invested capital. The next quarterly reports will be released in May 2022 and are expected to beat the market expectations.
Allstate’s free cash flow was at $4.77B last year. This has allowed them to repurchase their stock ($3.3B) last year, therefore creating shareholder value. They paid out $885M in dividends last year.
The Allstate company will attract a lot of investors as we approach a seemingly chaotic future. They will live true to their trademark mission of ensuring their customer’s funds are in ‘good hands’.
Should I wait before buying shares in Allstate stock?
Allstate is a tricky play. Contradicting views exist, and thus the right decision to make is a quagmire. The stock is bullish in the short-term, due to rising rates, but bearish in the not-so-distant future.
Analysts recommend a hold. Moving averages indicate a strong buy and oscillators recommend a sell. It is an overall buy, but the price is too high.
Allstate Stock Price Chart
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