Allstate: An Attractive Market Insurance Policy - Barron's

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THE TRADER: Allstate by Kopin Tan

Summary: Allstate Corp. (ALL) shares fell 7.6% in January, wiping out over $3b of its market cap, after its $1.78/share operating income fell short of consensus analyst estimates of $1.84, and its decision to stop issuing guidance left some investors worryied. But volatile data points like a rise in injury severity are likely no more than unusual flukes. Claims rates are dropping, so if no further unhappy surprises are forthcoming, margins are likely to rise. Allstate's doing a great job of utilizing its capital -- last quarter it made 22.4% (annually), its fifth straight quarter with +20% ROE. Industry averages are about 15%, and Bear Sterns analyst David Small expects Allstate to continue outperforming in 2007. A current share price of $61 puts it at 1.7x book value, in-line with other insurers, but Allstate has historically commanded a premium. Small's current price target is $69, and Allstate's record of value and steady profitability should be an insurance policy against market chopiness.
Related Links: Insurance Sector Looks Cheap • Allstate's Latest Trouble: Mississippi's Burning a Hole Through Its Pocket • Jim Cramer's Take on ALL