Founded in 1931 and headquartered in Northbrook, IL, The Allstate Corporation (ALL) is the third-largest property-casualty (P&C) insurer and the largest publicly-held personal lines carrier in the U.S. Beyond property insurance, the company also provides a range of life insurance and investment products to its diverse customer base.
Headwinds
Catastrophic Loss Risk
The risk of losses due to catastrophic losses is unavoidable for companies like Allstate that are in the property insurance business. Though Allstate’s management can do its best to reduce such losses through its catastrophe management strategy and reinsurance programs, it cannot control the weather. Weather-related losses over the years have put a strain on the company and have increased dramatically since 2019.
For example, in 2022, the company incurred roughly $3.1 billion in catastrophic losses. Meanwhile, in 2023, losses from weather-related damages are expected to more than double year-over-year.
Ballooning Debt
The catastrophic losses incurred by the company have led to exploding levels of debt. Since 2020, Allstate’s debt-to-equity ratio has more than doubled. Remember, the more debt a company incurs, the more interest it will pay.
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Lack of Growth and High Valuation
The two main investor baskets that exist are growth and value – or a combination of the two (Growth at a Reasonable Price, or GARP). Unfortunately for Allstate’s stock, the company is unattractive from both perspectives. Last quarter, the company posted a loss of $1.30 per share in EPS. Meanwhile, abysmal single-digit sales growth is expected until the end of 2024.
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Conversely, despite the lack of growth and expected growth moving forward, Allstate remains overvalued. ALL’s price-to-book ratio of 1.84 is much higher than its peer groups price to book of 1.62.
Relative Weakness
Allstate is a relatively stable, slow-growth, old economy type company. In the current risk-on market environment, stocks like Allstate are lagging, while growthy, tech-oriented stocks outperform.
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Takeaway
Unpredictability, a high valuation, and rising debt are reasons to avoid Allstate shares. Furthermore, the stock is in a poor environment, and the chart indicates relative weakness.
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