Allstate Earnings: Strong Results Due to Multiple Tailwinds

Allstate, like its peers, is currently enjoying tailwinds on both sides of the business as underwriting conditions grow more favorable and higher interest rates boost investment results. The net effect in the third quarter was an annualized return on equity of 26%, well above the company’s historical average. While we appreciate the strength of the near-term outlook, we see this performance as primarily due to the cycle and temporary. We will maintain our $138 fair value estimate for the no-moat company and see the shares as materially overvalued. We believe the market is overly focused on near-term results and expect returns to normalize over time.