Allstate: Getting Into The Danger Zone

Core Viewpoint - The Allstate Corporation is experiencing a turnaround with significant improvements in revenue and earnings, despite previous losses, indicating potential investment opportunities [4][6][8]. Financial Performance - In Q2 2024, Allstate reported consolidated revenues of $15,714 million, a 12.4% increase from $13,979 million in Q2 2023 [7]. - The net income for Q2 2024 was $301 million, a substantial recovery from a loss of $1,389 million in the same quarter of the previous year [7]. - Adjusted net income per diluted share was $1.61, compared to a loss of $4.42 per share in Q2 2023 [7][10]. Underwriting Results - Underwriting produced a loss of $145 million in Q2 2024, although this is an improvement from a loss of $2,094 million in Q2 2023 [9][10]. - Premiums earned increased to $13,339 million, up 11.9% from $11,921 million in Q2 2023 [9]. Investment Income - Net investment income for Q2 2024 was $712 million, up from $610 million in Q2 2023, with market-based income contributing significantly [11][12]. - The rise in interest rates has positively impacted investment income, with expectations for continued growth until at least mid-2025 [12]. Valuation Metrics - The price-to-earnings (P/E) ratio is currently at 12, while the price-to-sales ratio indicates that the stock is not overly expensive [8][14]. - The price-to-tangible book value ratio is notably high at 3.623, suggesting potential risks of mean reversion if market conditions change [14][16]. Outlook - The company is expected to maintain strong cash flow after dividends, with dividends constituting about 25% of expected earnings [16]. - There is caution regarding potential profit contraction if investment income declines and combined ratios worsen due to consumer pushback against rising insurance premiums [12][16].