Within five weeks, shares of The Allstate Corp. (ALL) have scaled a new 52-week high at $62.41 on Sep 18. The stock price appreciation was likely led by the increased possibility of a rise in interest rate by the Fed.
Benign catastrophe losses so far in third-quarter 2014 also raise optimism for healthy earnings. Notably, this property-casualty insurer’s shares have risen about 18.1% since the beginning of 2014.
Yesterday’s closing price represents a strong one-year return of about 24.5%, against 19.2% clocked by the S&P 500 index. Average volume of shares traded over the last three months stands at approximately 2,265.9K.
Moreover, this Zacks Rank #3 (Hold) stock has kept its earnings streak alive by delivering positive earnings surprises in the trailing four quarters, with an impressive average beat of 18.8%.
Rationale
Allstate’s prudent enterprise risk management has helped in controlling operating costs as well as maintaining its margins and investment portfolio amid the low interest rates. Strong capital further enables Allstate to take advantage with a hike in interest rates, which is in the offing as indicated by the Fed recently.
We believe the insurance sector, earnings of which are substantially influenced by interest rates, will benefit from the rise. The higher rate of interest will generate better returns for the investment of insurance companies, thereby increasing their margins and return on equity (ROE).
Until then, Allstate is focused on driving sales of the homeowners and car insurance businesses, which do not significantly depend on interest rates, thus steering clear of the present low-rate environment. Eventually, the improvement in interest rates and pricing will help the company hedge against market and uncertain catastrophe risks.
Going forward, Allstate’s diversified business portfolio and modest growth outlook will continue to support active capital deployment as well as instil confidence in shareholders and ratings agencies.
Moreover, the long-term growth rate for Allstate is pegged at 7.8%, at par with the peer group average.
Investors interested in insurance stocks could consider AmTrust Financial Services Inc. (AFSI), National General Holdings Corp. (NGHC) and Mercury General Corp. (MCY). All these stocks sport a Zacks Rank #1 (Strong Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment