Citigroup Reiterates Hold Rating on Allstate Corp (ALL)

Citigroup is out with a research report this morning, where it reiterates its Hold rating on Allstate Corp. ALL; it has a $32.00 price target on the stock. The Citi analysts cited a recent meeting with company management, where they came away believing that the company is continuing to address problem areas while pushing forward in the favorable Personal Auto segment. The analysts said that auto trends remain positive, with pricing trends doing well industry-wide. “While ALL is benefiting from better rates, they are under-punching their weight when it comes to PIF growth. Part of the issue resides in a difficult CA. and FL. market, which they are actively addressing through rate/reduced new business,” they added. The Citi analysts added that company management also believes that they have reduced peak exposures but are earlier in the process of optimizing target returns — still several quarters away. Speed to implement contingent on regulatory environment. Despite upward rate actions, retentions have been solid. As for valuation, the analysts remarked, “Our excess return model gives us a target price of $32. Under this approach, we use current equity capital (ex. OCI) as an anchor and add the present value of the excess returns going forward. This works well for P/C companies as we can normalize for ROEs to get a sense of what the company earns in excess of their cost of equity, or hurdle rate. We then have to make assumptions about payout of dividends and repurchase of stock in order to assess the excess cash flows this company should be throwing off. Finally, we make a terminal growth assumption.”