Is Allstate Stock’s Cheaper Valuation a Discount Deal or Fool’s Gold?

Property and casualty insurer, The Allstate Corporation (ALL Quick QuoteALL – Free Report) , is trading comparatively cheap at the moment from a valuation standpoint. Its forward earnings multiple of 11.78X is lower than the property and casualty insurance industry average of 27.56X. The stock also looks attractively valued relative to other insurers like The Progressive Corporation (PGR Quick QuotePGR – Free Report) and The Travelers Companies, Inc. (TRV Quick QuoteTRV – Free Report) , with forward 12-month P/E of 17.81X and 12.78X, respectively. Allstate now has a Value Score of B.

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Allstate’s cash flow situation is also encouraging. In the first nine months of 2024, its operating cash flow surged 140.6% to $7.23 billion. Going by its price-to-free cash flow (P/FCF), a reliable indicator of a company’s financial health, ALL is trading at 6.24X, below the industry’s average of 30.5X.

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With the stock trading at a discount, we examine Allstate’s growth drivers and challenges to determine if it presents a strong investment opportunity for investors at this time.

ALL Stock Growth Drivers to Watch

Allstate is implementing a strategic plan focused on streamlining operations and reducing costs to fuel its growth. The sale of its Employer Voluntary Benefits business to StanCorp Financial Group for $2 billion and the potential divestiture of its Individual Health and Group Health units are pivotal steps in this direction. These moves are expected to enhance operational efficiency, drive underwriting gains, and redirect savings toward technology upgrades and product management.

The company’s emphasis on cost reduction and efficiency improvements is poised to bolster profitability and support long-term growth. Focusing on Allstate Protection Plans and expanding mobile phone protection services in Europe demonstrate the company’s commitment to diversifying its product offerings, potentially attracting a broader customer base.

Allstate prioritizes customer acquisition and its direct-to-consumer (D2C) growth model, positioning it for strong performance despite challenges like catastrophe losses and legal issues. By investing in digital capabilities and enhancing customer experience, Allstate aims to accelerate organic growth and capture greater market share.

Premium growth from a diversified portfolio, strategic acquisitions and disciplined pricing have been key drivers of Allstate’s performance. Net premium earned has seen consistent increases of 13.9%, 8.7%, 10.4%, and 11.5% in 2021, 2022, 2023, and the first nine months of 2024, respectively, reflecting the effectiveness of its growth strategy.

ALL Earnings Estimates & Surprise History

The Zacks Consensus Estimate for 2024 adjusted earnings for Allstate is currently pegged at $16.27 per share, indicating a surge from 95 cents a year ago. It has witnessed two upward estimate revisions in the past 30 days against none in the opposite direction. The consensus mark for 2025 earnings signals a further 17.8% growth. The consensus estimate for 2024 and 2025 revenues suggests 12.1% and 7.1% year-over-year growth, respectively.

It beat earnings estimates in each of the past four quarters, with an average surprise of 135.2%.

Should You Buy ALL Stock Now?

The stock is trading below the 50-day moving average, indicating a bearish trend.

ALL Stock Trading Below 50-Day SMA

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While Allstate has strong growth drivers, investors should weigh some headwinds which can limit its short-term gain. The insurance market’s intense competition makes maintaining attractive pricing difficult. This could potentially impact Allstate’s ability to retain and attract customers.

The increasing number of vehicles on the road, inflationary pressures, supply chain disruptions and advancements in automotive technology have driven up car repair and replacement costs, likely leading to higher auto claims.This will likely result in lower margins for the auto business.

As of Sept. 30, 2024, Allstate’s debt stood at $8.1 billion, with a cash balance of only $816 million. Its total debt-to-total capital ratio of 27.95% exceeds the industry average of 16.76%, signaling a higher debt burden. This elevated debt level is leading to higher interest expenses, which grew 9.9% year-over-year in the first nine months of 2024. This can add pressure to the company’s financials.

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Despite Allstate stock gaining over 29% in the past year — outperforming both the industry average of 23.9% and the S&P 500’s 26.7% increase — much of the positive outlook seems to be priced in. As a result, there may be limited short-term upside.

Stock Price Performance – ALL, PGR, TRV, Industry & S&P 500

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With Allstate currently carrying a Zacks Rank #3 (Hold), new investors might consider staying on the sidelines and waiting for a more favorable entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.