Striding ahead with its proactive expansion approach, Allstate Corp. (ALL) announced its plans to employ about 85 new insurance agencies across south-west of the US. The company plans to begin with the appointments by the end of the second half of 2012.
Accordingly, Allstate intends to increase its agency owners by 20 in Oklahoma, 30 in Phoenix, 15 in Nevada, and 10 each in Albuquerque and Salt Lake City. Earlier this year, the company had laid out its aim of appointing about 28 new agency owners in Michigan by the end of 2012, while about 140 were targeted to be employed across the primary locations of Connecticut, Maine, New Hampshire, Pennsylvania, Rhode Island and Vermont.
The recent surge in sales professionals along with the expansion of agency owners reflect the company’s capital efficiency, strong operating leverage and its focus to generate an operating return on equity (ROE) of 13% by 2014 through business growth and brand management. This also complements Allstate’s long-term growth strategy to reposition products and distribution platforms to meet the changing needs of consumers.
Earnings Review
Beginning this month, Allstate reported second-quarter 2012 operating earnings per share of 87 cents, which substantially exceeded the Zacks Consensus Estimate of 52 cents and the year-ago quarter’s loss of $1.24. Allstate’s net income for the reported quarter came in at $423 million or 86 cents per share, as opposed to a net loss of $624 million or $1.19 per share in the prior-year quarter, witnessing a stark improvement.
Results for the quarter reflected lower catastrophe losses, which further led to reduced claims expenses coupled with lower operating expenses and higher premiums. Expansions in emerging businesses and other personal lines along with higher investment income also benefited the results.
These were offset by lower realized capital gains and underperformance of Allstate Financial. Improved operating cash flow and prudent capital management also drove return on equity (ROE), book value per share and combined ratio.
The Zacks Consensus Estimate for the third quarter of 2012 earnings is currently pegged at 78 cents, which is about 390% above the prior-year quarter’s earnings results. Of the 20 firms covering the stock, 10 revised their estimates upward in the last 30 days, while 6 downward revisions were witnessed. The upside potential for the second quarter currently stands at 2.56%.
Our Take
Overall, we believe that Allstate will persistently benefit due to its diversification, superior financial strength rating and tactical approach to investment. These factors have helped Allstate gain the second-largest personal lines writer position in the US, which also reflects its competitive strength against arch rivals such as Berkshire Hathaway-A (BRK.A) and The Travelers Companies (TRV).
However, Allstate’s exposure to catastrophe risks, capital losses and volatility in pricing, interest and loss costs will continue to impact the premiums and investment portfolio in the upcoming quarters. Hence, we maintain a Neutral recommendation on Allstate for the long-term, with a Zacks Rank #3, which translates in to a short-term Hold rating.
ALLSTATE CORP (ALL): Free Stock Analysis Report
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TRAVELERS COS (TRV): Free Stock Analysis Report
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