About Allstate
Frankly, I think we can all come together on the fact that insurance is just about one of the absolute worst, boring, situationally stressful, conflicting things an adult or any other entity or organization has to deal with.
With that, pretty much all of the commercials with the emus from Liberty Mutual, the quirky character bunch from Progressive and the wrecking ball representing Allstate make insurance seem so fun and interesting when we all know all too well that it just isn’t.
It stinks when you don’t need it and are paying out what can seem like excessive monthly premiums and all of the sudden opt to discontinue your auto insurance and shortly thereafter find yourself involved in a fender bender that you can’t afford to deal with.
You despise it when you have it and don’t need it but long for it greatly when you don’t and find yourself in a sticky situation.
However, I guess there’s some comfort to be had (not really) when you’re insured by Allstate, since, you know, you’re in good hands.
While many of even the largest insurance companies have their own specialties and coverage options (as we’ve written about one of them in the past in a stock analysis article), Allstate offers a relatively wide range of insurance products including identity insurance, auto insurance as well as insurance capabilities with homes, motorcycles, ATVs, renters, condo and a few other programs as well.
Outside of Allstate itself, the company, among a few of its other subsidiaries is home to prominent national auto insurance platform, Esurance, which from our vantage point was a very savvy move on the part of Northbrook, Illinois-headquartered Allstate.
At the end of the day, Allstate, like many other insurance companies across the board generates the bulk of its revenue through the monthly premiums it charges its customers, which have apparently been rising in recent years, which is great for a company such as Allstate but not great for society as a whole.
Being that auto insurance is an undeniable staple for Allstate and its operations overall, it might be worth briefly pondering a general idea.
Let’s take Austin, Texas as an example.
Let’s also say that automobile-related accidents have increased at an alarming rate over the past four years (which would not surprise us at all, by the way).
This leads to an insurer like Allstate raising premiums because a few bad apples spoiled the entire orchard, which, in more ways than none, isn’t necessarily a bad thing for Allstate, as it is receiving more in premiums each month since the risk is increasing on their end.
Say, however, that the company finds itself on the short end of that stick and an accident occurs and the claimant contacts Esurance (just a reminder, it is a subsidiary of Allstate) in order to receive coverage for their recent accident, that just happened to not be their fault.
It is our opinion that Allstate (and other insurance companies as well) have wide and deep, knowledgeable teams of in-house and external legal professionals that know a little too much about automobile insurance and how to skirt having to dish out a payment for said customer’s claim.
For a company such as Allstate in this scenario, the cost of retaining this counsel is well worth not having to pay out policy payouts to those that it insures, which, holding all of this to be accurate, results in a very, very attractive business model and leaves its customers in the dust.
In no way are we attempting to throw not-so-subtle jabs at Allstate or the insurance industry in general (at the end of the day, business is business), rather we are simply highlighting the mere fact when it comes to collecting a recession resistant buck off of millions across the globe while simultaneously trying everything in its power to not pay its customers what they may or may not be owed, insurance is great place to be.
That’s insurance and that’s Allstate and these are some of the key financial figures and metrics behind one of the world’s largest insurance companies.
Allstate’s stock financials
With a prevailing share price of around $112, a market capitalization of $29.43 billion, a nonexistent price-to-earnings (P/E) ratio and an annually distributed dividend payment of $3.56 to its shareholder base, there isn’t really anything shocking about these initial figures as they pertain to Allstate, as this is a huge company (hence the sizable market capitalization) that can more than likely afford to pay out a handsome quarterly dividend to its investor base and as for the unlisted P/E ratio, Allstate likely opts to retain any of its earnings and invest and reinvest them back into its core businesses so as to continue expanding regionally, nationally and globally and even more so, in order to be well capitalized enough to pay out coverage payments when necessary so as to not be caught with its pants down.
From the perspective of the company’s balance sheet, Allstate’s executive team is tasked with tending to and properly handling the nearly $98 billion it has in terms of total assets along with approximately $80.5 billion in terms of total liabilities on its books.
Given the nature of the insurance industry and the outstanding claims or other investments the company is in the process of financing, the greater overall structure of Allstate’s balance sheet, particularly its total asset-total liability breakdown doesn’t really scare us nor deter us from considering this company’s stock (NYSE: ALL) as a long-term investment opportunity.
Nevertheless, if this company operated in any other industry, we might view its total liabilities as being a bit too close for comfort in comparison to its total assets, however, the nature of being a giant in the insurance world calls for and justifies the general breakdown of Allstate’s balance sheet.
Moving along to the company’s income statement, Allstate’s total annual revenues have seen a favorable rise since 2018, as it stood at a hair under $40 billion in 2018, rose to $41.5 billion in 2019, $41.9 billion the next year, leading the charge all the way up to its latest reported figure of $51.4 billion, as reported in 2022.
For an established, longtime insurance provider this is more than just pretty solid.
Growing year-over-year (YOY) annual revenues on an already large base is impressive in its own right, as it implies that Allstate is continuing to find ways to innovate in new markets as well as further penetrate the markets and regions it already has a sizable presence in.
As it relates to the company’s cash flow statement, the net income train has been chugging along just fine as it has been both consistent and positive between 2018 and 2021 and its total cash from its operations essentially the exact same, which we expected to a certain degree given the predictability of a company such as Allstate, routinely receiving monthly premiums.
Allstate’s stock fundamentals
With the sweet comes the sour, specifically in relation to Allstate’s listed trailing twelve month (TTM) net profit margin (displayed on TD Ameritrade’s platform).
For example, the company’s TTM net profit margin is pegged at -4.41% to the industry’s overall average of 9.71%.
We think this could be a result of offering insurance solutions in so many industries, as the wider the net this company casts, sure, the more premiums it is bound to collect but at the same time, the more potential claim payouts it will have to tend to will probably rise as well, thus, the lackluster, negative TTM net profit margin.
The insurance sector in general isn’t known for having the highest of TTM net profit margins, but the fact that a major player (Allstate in this case) is in the red in this respect is somewhat scary to us and we hope this ship gets turned around into positive net profit margin territory, perhaps by the company further focusing its efforts on more lucrative areas of insurance instead of casting too wide a net.
Additionally, also according to the figures shown on TD Ameritrade’s platform, Allstate’s TTM return on its assets is in the red as well compared to the industry’s positive average of 2.92%, with Allstate’s sitting at -2.37%.
Claims, claims everywhere, I guess.
Should you buy Allstate stock?
It seems as though this company has its fair share of struggles when it comes to TTM net profitability, which is hardly ever a good sign.
While we certainly don’t think it would be appropriate to give a company as large, established and tenured as Allstate a pass in this regard, the reality is that part of playing in the insurance industry involves paying out claims that can apparently be sizable at times which can potentially squeeze margins to uncomfortably thin levels.
However, if one is willing to grapple with this reality and look at the handful of positives such as the company’s growing total annual revenues, its total asset-heavy balance sheet, its cash flows and market share overall, Allstate doesn’t seem all too bad.
Nevertheless, in the interest of upholding objectivity through incorporating this company’s TTM net profitability red flags (from our perspective, at least), it seems to make the most sense to give Allstate’s stock (NYSE: ALL) a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.