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New Insurance Products Will Expand Market Share

AN
Consensus Narrative from 17 Analysts
Published
20 Aug 24
Updated
07 May 25
Share
AnalystConsensusTarget's Fair Value
US$226.59
10.6% undervalued intrinsic discount
07 May
US$202.49
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1Y
19.2%
7D
1.1%

Author's Valuation

US$226.6

10.6% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Key Takeaways

  • Allstate's transformative growth strategy and new insurance products aim to boost market share and revenue in the Property-Liability sector.
  • Asset sales and the S.A.V.E. program focus on optimizing capital allocation and customer retention to enhance earnings and margins.
  • Volatile catastrophe losses and aggressive pricing strategies alongside regulatory challenges could compress margins and impact Allstate's future profitability and growth.

Catalysts

About Allstate
    Provides property and casualty, and other insurance products in the United States and Canada.
What are the underlying business or industry changes driving this perspective?
  • Allstate is focused on increasing market share in its Property-Liability business by implementing a transformative growth strategy, which includes improving customer value and lowering costs. This approach is expected to help revenue growth by attracting more new business and retaining existing customers.
  • The company has launched new, more competitive insurance products and expanded its distribution channels to increase new business from Allstate agents, direct sales, and independent agents. This should contribute to revenue growth by capturing a larger share of the auto and homeowners insurance market.
  • Allstate's diversified investment portfolio is designed for resilience in varying market conditions and employs a dynamic asset allocation process. This proactive investment management could positively impact future earnings by optimizing returns and managing risks better than a passive approach.
  • The recent sale of an Employee Voluntary Benefits business and another anticipated large sale in that segment could provide capital to reinvest in high-growth areas, enhance margins, and potentially support share repurchase programs, thereby positively affecting earnings per share.
  • The introduction of the S.A.V.E. program aims to improve customer retention by enhancing affordability and customer experiences. Higher retention rates are likely to support consistent revenue streams and improve net margins over time.

Allstate Earnings and Revenue Growth

Allstate Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Allstate's revenue will grow by 5.8% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 6.0% today to 6.6% in 3 years time.
  • Analysts expect earnings to reach $5.1 billion (and earnings per share of $20.04) by about May 2028, up from $3.9 billion today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 13.6x today. This future PE is lower than the current PE for the US Insurance industry at 14.4x.
  • Analysts expect the number of shares outstanding to grow by 0.34% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Allstate Future Earnings Per Share Growth

Allstate Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Catastrophe losses, such as the California wildfires, significantly impacted underwriting income, leading to earnings volatility and higher claims, which could affect future profitability and margins.
  • Persistent competition in the personal auto insurance market may push Allstate to engage in aggressive pricing strategies, potentially compressing net margins.
  • The impact of tariffs on auto repair and replacement costs is uncertain; significant increases could lead to higher loss severity and require rate adjustments, affecting underwriting profitability.
  • Lower retention rates in the Property-Liability segment, particularly in auto insurance, may hinder sustained growth despite new business volume, impacting revenue stability.
  • Challenges related to regulatory changes, such as those experienced in California, can limit the ability to adjust rates promptly in response to cost increases, which may pressure earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $226.588 for Allstate based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $286.0, and the most bearish reporting a price target of just $149.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $77.4 billion, earnings will come to $5.1 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 6.2%.
  • Given the current share price of $202.06, the analyst price target of $226.59 is 10.8% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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