J.P. Morgan Comments On Allstate Acquisitions

According to J.P. Morgan, Allstate ALL pending acquisition of Esurance, a direct-to-consumer auto insurer, and Answer Financial, an online personal insurance broker, from White Mountains Insurance NC improves the company's long-term strategic position. J.P. Morgan said that financially, the transaction appears almost immaterial in terms of its impact on short-term EPS prospects. “While the company is essentially forgoing incremental buybacks of approximately $700 million (the estimated intangible asset) and, therefore, $0.15 of potential EPS (the opportunity cost), we estimate that the long-term annual EPS contribution from the transaction ranges from $0.09 to $0.19. From an investment standpoint, we still believe the core reasons one should own ALL shares is (1) margin improvement in auto, especially in NY & FL and (2) potential margin improvements in homeowners. Improved capital flexibility & share repurchases remain a third investment factor, though the EPS upside from this category has been reduced over the short term.” Allstate closed yesterday at $32.45.