Senior Analyst Amit Kumar of Macquarie Group Limited says Allstate Corp (NYSE:ALL) is closing the gap with Progressive Corp (NYSE:PGR) after putting corrective actions in place to improve its book.
Moving onto the personal lines space, I would pick Allstate as my top pick. The reason is fairly simple: The company witnessed adverse trends at the end of 2014. They put corrective actions in place which included pricing actions, culling underperforming business and expense reduction initiatives in place.
As a result, in Q4 of 2015, we saw improving data. Again, one quarter does not make a trend, but Allstate is clearly on the right path toward fixing their book.
When you compare Allstate versus Progressive and then you look at the return on equity, the gap is not that large. Allstate is a 10%, 11% ROE story, while Progressive is a 16%, 17% return on equity story, but if you look at the stock multiples, Progressive trades at levels virtually twice those at what Allstate trades at. So our thesis is that, over time, as Allstate’s results improve, they will close the gap with Progressive.
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