Allstate - Still a good buy

Allstate (ALL) recently reported 2Q 2008 Earnings, .05 per share, a 98% decline year over year. The decline was caused by a combination of higher than usual catastrophe losses and change in intent write-downs on the investment portfolio. While the numbers are unsettling at first glance, they do not affect my view that Allstate is undervalued based on its strong industry position and long-term earnings potential. Before going into the conference call and current issues, here is a brief overview of historical performance:

Allstate has increased its tangible book value per share by a little over 5% per year for the past five and ten year periods. That includes some major hits from asbestos liability in 2001-2002 and Katrina in 2005. The dividend is 1.64, yielding 3.64% at a recent share price of 45.00. Share counts are in steady decline due to buybacks which have averaged 3.4% per year for the past 5 years. Over the long haul, this adds up to about 9% annual return. Buying the shares when they are trading low in their range, higher returns can be achieved.

Current issues include 1) the effect of the credit crisis on the investment portfolio, 2) the soft market in P&C insurance and 3) issues related to Homeowners/catastrophe exposure, to include regulatory backlash in affected states. What I heard in the conference call was reassuring with respect to all three concerns.

Get TomA's take on these three concerns when you read the rest of this insightful post.

by The Freshman |  08/01/08  |  Stocks: ALL,