Are You Still in Good Hands with Allstate? - InvestingChannel

Are You Still in Good Hands with Allstate?

Proprietary Data Insights

Financial Pros Top Property & Casualty Insurance Stock Searches in the Last Month

Rank Name Searches
#1 Allstate Corporation 2,562
#2 Markel Corporation 448
#3 American Financial Group 367
#4 Chubb Limited 145
#5 Progressive Corporation 96

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Financial Services

Are You Still in Good Hands with Allstate?

Several months ago, we covered Allstate Corp. (ALL), which was financial pros’ top insurance stock search at the time.

Since then, it’s climbed a bit more than 8%, markedly outperforming the market.

So what’s changed?

Hurricane Ian pummeled Florida, destroying homes and leaving billions of dollars in damages.

It’s exposed many insurers, including Allstate, to potentially huge losses.

Interestingly, the stock hasn’t sold off.

Does that mean the worst is behind the company? Or are shares set to slide?

Allstate’s Business

Known for the slogan, “Are you in good hands?,” Allstate and its subsidiaries offer insurance products in the U.S. and Canada, primarily on property and tangible assets.

The company’s business units break down as follows: 

  • Home and auto: Private passenger auto, homeowners, and renters insurance.
  • Product protection:  Consumer product protection plans for mobile phones, electronics, furniture, and appliances, as well as vehicle service contracts.
  • Health and benefits: Life, accident, critical illness, short-term disability, and other health insurance products
  • Runoff liability: Property and casualty insurance. 

Source: Allstate

Like most insurance companies, Allstate revenues come from customer premiums as well as conservative investments such as fixed income.

Their expenses are the payouts and typical SG&A costs.

The business is about as straightforward as they come


2021 was one of the best years for Allstate, where revenues grew 20.71% year over year despite gross margin contracting by 6.2%.



In 2021, Allstate took a one-time hit of around $4 billion related to a business divestiture.

Otherwise, earnings would look signficantly better.


The price-to-earnings (P/E) ratios across insurers for the last 12 months are all over the place.

Even the forward P/E ratios range from 139.41x for ALL to 12.88x for Chubb (CB).

Yet the price-to-cash-flow and especially the price-to-sales ratios for ALL look great.

In fact, the forward price-to-cash-flow for ALL is forecasted at 4.3x.

Why the discrepancy?

Much of it comes from higher auto-related payouts over the last couple of years, Hurricane Ian payouts, and yet-to-happen premium increases.



Allstate’s revenue growth is in the middle of the pack.

Its five-year average of 5.69% is above American Financial Group (AFG)’s and CB’s but well below Markel (MKL)’s at 13.52% and Progressive (PGR)’s at 13.49%.

Only AFG and CB have managed EBITDA and earnings-per-share growth over the last three years.

Yet ALL has the best levered free cash flow (FCF) three-year average growth at a whopping 44.51%.




Currently, ALL has some of the lowest margins among its peers except for the FCF margin.

It sounds odd until you realize it’s simply a mismatch between premiums and payouts. Eventually, either earnings will improve or cash flow will deteriorate.



Our Opinion 4/10

You wouldn’t think it, but inflation hurts insurers.

The same claims require more money to repair or replace the same assets.

At the same time, fixed-income principals tend to decline as interest rates increase. Eventually, higher interest rates make up for the difference, but it can take years to flow through.

Simply put, Allstate is too expensive for its risks.

We think investors are hiding in insurance stocks and the group as a whole is due for a reckoning.

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