A holding in the Clear Large Cap Value portfolio is the Illinois-based Allstate Corporation (NYSE:ALL). When looking at six month, one and two year charts, why has performance of the stock of this well-known insurer lagged on the S&P 500 (NYSEARCA:SPY)?
Since its founding in 1931, ALL has consistently pursued its mission statement: “To be the best; serving our customers by providing peace of mind and enriching their quality of life through our partnership in the management of the risks they face.”
ALL has stayed fairly true to its word, and has grown into a Fortune 100 company. It has become one of the best known, and successful companies in the insurance industry, and has grown its brand to span all industries. With a market cap over $37 billion, and roughly $35.8 billion in annual revenue, ALL continues to be one of the largest companies in the world. It sells 13 major lines of insurance, which include auto, property, life and commercial. The firm also manages over $157 billion in assets through its retirement, investment products and banking services.
With over 70,000 employees, ALL has served as a model for diversity amongst its peers. Roughly 59% of its employees are women, and nearly 30% are minorities. Recently ALL, the official insurance sponsor of NASCAR, announced that it would be sponsoring Drive for Diversity driver, Jesus Hernandez, during the 2007 season. This translates into smart business as its clientele, is as diverse as its employees. Serving customers in 49 states and Canada, ALL provides insurance products to over 17 million households. The firm insures one out of every nine automobiles, and one out of every eight homes in the United States, and is among the leading life insurers in the country.
At this point, let's take a look at its strong fundamentals. ALL continues to support inclusion of this stock in the portfolio. To start off, ALL boasts a net profit margin of 16.02%, compared to the industry average of 11.40% over the trailing twelve months. Also, over the trailing twelve months it has posted a phenomenal return on equity [ROE] of 23.58%, compared to its peers who have averaged 14.30%.
The company has also managed its business with relatively low leverage for an insurer, which is demonstrated by its long term debt to equity ratio of only 0.21,which is roughly one-fifth of the industry average of 1.02. With such a strong balance sheet and profitability, ALL has provided its investors with a 2.50% dividend yield over the past year, materially higher than the industry average dividend yield of 1.47%, over the same period.
Its revenue growth has continued, which is always challenging for such a large firm. Its growth is slightly below its peer group average, as it only posted 2.8% in its most recent quarter, versus the industry average of 3.5% .
Even with these strong fundamentals, and some positive revenue growth, the stock continues to be under-valued by the market. This is measured in part by a price to earnings ratio (P/E) of 7.6, that is substantially below the industry P/E ratio of 12.2 over the past year. In addition, its price to book ratio (P/B) of 1.66, is also below the industry average P/B ratio of 1.73. Based on such solid financial data, and modest valuation, our multi-factor model continues to calculate that this stock will come out of its doldrums, and outperform for our portfolio holders.
Disclosure: Mr. Corn is CEO of Clear Asset Management Inc. Allstate Corporation (ALL) is a holding in the Clear Large Cap Value portfolio.
Mr. Corn owns shares of ALL directly through his participation in the portfolio.
ALL 1-yr chart