Allstate Earnings: Improved Market Conditions Lead to Strong Results

Allstate’s results have shown a quick turnaround as market conditions have flipped from adverse to favorable. The annualized ROE of 19% for the first six months of the year is well above the company’s historical average, and we think near-term prospects remain strong as pricing increases and higher interest rates provide dual tailwinds for the business. However, insurance is an inherently mean-reverting industry, and we do not believe this favorable backdrop will persist. We will maintain our $130 fair value estimate for the no-moat company and see shares as materially overvalued. We think the market is overly focused on near-term returns.