On Wednesday, Barclays (LON:BARC) initiated coverage on Allstate (NYSE:ALL) with an Underweight rating and a price target of $175. The firm provided a cautious outlook on the insurance company's growth prospects and earnings potential. The Underweight rating reflects concerns over Allstate's ability to improve growth, especially given the retention challenges within its exclusive agent channel, which Barclays believes could significantly offset the direct channel's growth.
The analyst from Barclays pointed out that the Street may be overly optimistic in expecting Allstate to significantly improve its loss ratios while maintaining an expense ratio that is below historical averages. As Allstate shifts its focus towards growth, the analyst expects the company's expense ratio to trend upwards, possibly exceeding the firm's projected expense load. This trend could pose a risk to earnings per share (EPS) estimates.
Barclays also highlighted that Allstate's current premiums to surplus ratio is approximately three times higher than historical levels, which typically range from 1.5 to 2 times. The elevated ratio has been manageable due to inflationary pressures on results, but Barclays anticipates that Allstate will aim to reduce this ratio over time. This adjustment could lead to lower levels of share repurchases than what is currently anticipated by consensus estimates.
The firm's assessment suggests that Allstate may face a difficult path in meeting both growth and EPS expectations. Barclays believes that the stock's valuation has become stretched, assuming that Allstate must deliver on both fronts to justify its current price levels. The new price target of $175 set by Barclays indicates a cautious stance on the stock's future performance.
In other recent news, Allstate Corporation (NYSE:ALL) revealed significant catastrophe losses in July, totaling an estimated $542 million, largely due to Hurricane Beryl. This resulted in Keefe, Bruyette & Woods revising their Q3 and full-year 2024 earnings per share (EPS) estimates for Allstate to $1.61 and $13.10, respectively. Despite the losses, the firm maintains its Outperform rating on Allstate, expressing confidence in the insurer's operational strength and recovery potential.
In a strategic move, Allstate announced the sale of its employer voluntary benefits business to StanCorp Financial for $2 billion, a transaction projected to result in a $600 million profit for the company. This sale is expected to free up approximately $1.6 billion in capital for reinvestment into Allstate's core auto and homeowner insurance lines.
TD Cowen, demonstrating faith in Allstate's future, raised the insurer's price target from $193.00 to $224.00 and maintained a Buy rating on the stock. The firm highlighted Allstate's attractive estimated price-to-earnings (P/E) ratio for 2025 and its strong outlook for profitable policy growth.
However, Allstate was downgraded from Buy to Hold by CFRA, with a maintained price target of $200.00. Other firms, including Piper Sandler and Wells Fargo (NYSE:WFC), also adjusted their ratings, acknowledging potential benefits from Allstate's recent divestiture and improvements in auto margins.
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