The AllState Corporation ALL recently received rating action from A.M. Best for two tranches of senior unsecured notes that are due in 2026 and 2046, respectively. The proceeds is expected to fund the purchase of SquareTrade, which is a privately held consumer protection plan provider in the U.S.
Since AllState’s announcement of having signed an agreement to acquire SquareTrade, the stock has gained 1.41%. This is substantially higher than 0.68% gained by the Zacks categorized Insurance-Property and Casualty Industry. The stock price appreciation can be attributed to SquareTrade's commendable customer service, innovative product design, analytics and supply-chain logistics, which are expected to boost AllState’s already strong revenue base and innovative strategies. In addition, this acquisition will expand Allstate's customer relationships with 25 million protection plans for consumer electronics and connected devices.
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Coming back, Long-Term Issuer Credit Ratings (ICR) of “a-” have been conferred on the company’s $550 million 3.28% 10-year senior unsecured notes that are due in Dec 2026, and the $700 million 4.2% 30-year senior unsecured notes that are due in Dec 2046. The outlooks on these notes were stable.
A.M. Best also reiterated the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICR of “aa-” for the members of Allstate Insurance Group. The Long-Term ICR of “a-” of Allcorp has also been affirmed by the rating giant. The rating action came after Allstate announced its decision to acquire SquareTrade, which is a privately held consumer protection plan provider in the U.S. The buyout is subject to customary closing conditions and is likely to be completed by Jan 2017.
A.M. Best is to keep track of the transaction in order to access the developments and implications for the potential impact on ratings. Based on the preliminary review of the aforesaid deal, AllState’s financial leverage is likely to meet A.M. Best’s expectations for its current rating level.
The company is likely to fund the $1.4 billion acquisition deal with corporate cash and debt issuance of the above-mentioned $1.25 billion of senior notes. AllState expects this buyout to have a positive impact on its existing share repurchase program. Post acquisition, this transaction will be dilutive to the company’s earnings per share for the next three years.
Post acquisition, SquareTrade’s management team will continue to function from its current location, and the company will operate a separate entity under Allstate..
Zacks Rank and Stocks to Consider
AllState presently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the insurance industry that warrant a look include Alleghany Corporation Y, First American Financial Corporation FAF and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany Corporation deals with Property & Casualty reinsurance and insurance businesses in the U.S. and internationally. The company recorded positive surprises in three of the last four quarters with an average beat of 20.52%.
First American Financial is a leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S. The company beat estimates in all the trailing last four quarters with an average beat of 14.32%
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It posted positive surprises in all of the last four quarters with an average beat of 9.27%.
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