Allstate (ALL)


One of my favorite spots on a perfect fall day. Onto the analysis . . . 

Key Statistics

Enterprise Value = $27.791 billion

Operating Income = $4.283 billion

EV/Operating Income =6.48x

Price/Revenue = .73x

Earnings Yield = 12%

Debt/Equity = 27%

The Company

Allstate is the 4th biggest insurance company in the United States (as measured by market capitalization) and their main focus is automobile and homeowners insurance. Interesting bit of history: Allstate was established in 1931 by Sears. Allstate originally marketed policies via mail and the Sears catalog, which was revolutionary at the time. After 62 years of operating within Sears, it was spun off in 1993.

Market sentiment is relatively weak against Allstate. The stock is down 20% over the last year. The stock has been punished due to rising interest rates and various extreme weather events over the previous few years. There is also fear that the rise of autonomous vehicles will afflict Allstate’s insurance premiums in the long run.

My Take

From a quantitative perspective, Allstate appears to be an excellent company at a bargain price. At a P/E of 9, this compares to an industry average of 16.05. On a price/revenue basis, Allstate currently trades at 73% of revenue, compared to an industry average of 127%.  The forward P/E is presently 9, implying that Allstate is expected to maintain its current level of profitability by most analyst estimates. Allstate’s present valuation also compares favorably to its history. Allstate’s average P/E over the last 5 years is 13, 44% higher than current levels. On an EV/EBIT basis, Allstate’s average multiple in the previous 5 years was 8.5, which is 31% higher than current levels.

Allstate is also a well-run company. The F-Score is presently 7, which places it at a high degree of financial quality. Allstate also achieves better results than its competitors, producing a return on assets of 3.31% compared to an industry average of 1.91%. It delivers these results without excessive leverage, with a debt/equity ratio of 27%.

Allstate also grows organically with the economy, with operating income and revenues steadily increasing over time. The share price has increased with the growth in business over time.


Regarding short-term risks, the Fed is signaling that the rate hikes will end, which ought to stop the pressure on its bond and loan portfolio. There is also the risk of extreme risk events, such as terrible weather events in the upcoming year. That is a constant risk for insurance companies that don’t vary much from year to year and is built into Allstate’s pricing models. With a history going back 87 years, I’m reasonably sure that Allstate can handle a bad hurricane season, for instance.

As for long-term risks, the fears about the rise of autonomous vehicles seem silly to me. We are a long way off from widespread adoption of autonomous cars, considering that most people keep their cars for 11 years. Even when autonomous vehicles are widely adopted, you will still need someone to sue when the car gets into an accident. Even if the car can drive itself, the driver’s insurance is still going to be held responsible when the car makes an error. I don’t think we’ll ever see a day when it will be legal for the driver to hang out in the back seat drinking whiskey while the car whisks away to its destination with the driver completely free of responsibility.

In short, Allstate is a well run, defensive pick that is experiencing organic growth and currently trades at an attractive discount to average valuations within the industry and Allstate’s history.

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.