Allstate Raises Debt to Buyback Stock - Analyst Blog
November 09 2011 - 10:30AM
Zacks
Yesterday, the board of Allstate Corporation
(ALL) announced the approval of a new share repurchase program
worth $1.0 billion. While the share buy back will be made through
open market operations, it is scheduled to complete by March 31,
2013.
Accordingly, the auto and home insurer of the US – Allstate
plans to fund the share repurchases and another listed debt
maturity next year through its debt capital. For this, the board
has also approved its preferred stock offering coupled with the
issue of senior unsecured notes, all worth $1.25 billion.
Previously, during the third quarter of 2011, Allstate had
repurchased shares worth $308 million, thereby completing the $1.0
billion share repurchase program that was authorized in November
2010. However, this share repurchase program had an expiry of March
31, 2012 but was completed well before time. The company has
deployed about $20 billion of capital through share repurchases
over the last 17 years.
Additionally, the board of Allstate has also declared a regular
quarterly cash dividend of 21 cents, payable on January 3, 2012 to
shareholders of record as on November 30, 2011.
Although raising funds from the market to return wealth to
shareholders might retain the Allstate’s capital strength and
shareholders’ confidence, this in turn, poses ample risk on the
debt leverage of the company. Additionally, borrowing costs of such
funds would further weigh on the financials of the company.
Earnings Recap
Allstate’s third-quarter 2011 operating earnings of 16 cents per
share came in a nickel higher than the Zacks Consensus Estimate of
11 cents but significantly lagged the year-ago quarter’s earnings
of 83 cents per share. As a result, operating earnings plunged to
$84 million against $452 million in the year-ago quarter.
The reported net income came in at $165 million or 32 cents per
share, compared with $367 million or 68 cents per share in the
prior-year quarter, reflecting a radical decline.
Allstate reported total net revenue growth of 4.2% year over
year to $8.24 billion but substantially exceeded the Zacks
Consensus Estimate of $6.90 billion. Particularly, catastrophe
losses for the reported quarter escalated to $1.08 billion,
substantially higher than $386 million in the year-ago period.
Results for the quarter reflected higher catastrophe losses that
also led to increased claims expenses coupled with lower average
premiums and policies-in-force in Property-Liability insurance unit
and lower investment income. However, prudent capital
management and liquidity were quite impressive during the reported
quarter. This is reflected from stability in book value per share
and combined ratio, excluding the effect of catastrophes.
Overall, we anticipate continued benefits from Allstate’s
diversification, superior financial strength rating and proactive
approach to investment. These factors have helped Allstate gain the
second-largest personal lines writer position in the US, which also
reflects its competitive strength against arch rivals such as
Berkshire Hathaway-A (BRK.A) and The
Travelers Companies (TRV).
However, Allstate’s exposure to catastrophe risks, capital
losses and volatility in pricing, interest and loss costs will
continue to impact the premiums and investment portfolio in the
upcoming quarters.
ALLSTATE CORP (ALL): Free Stock Analysis Report
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis Report
TRAVELERS COS (TRV): Free Stock Analysis Report
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