NEW YORK—Friedman, Billings, Ramsey & Co. upgraded insurer Allstate Corp. on Friday to "Outperform" from "Market Perform," pointing to stabilizing loss trends and rate increases.
Auto accident frequency recently began declining, analyst Bijan Moazami said in a research note, and is likely to continue.
"In particular, we believe that higher gas prices and a potential recession could reduce the number of auto accidents," Moazami wrote in the note.
Allstate also asked for and received state approval to increase auto insurance rates in 28 states, with an average annual increase of 4.2 percent. That could help boost earnings, Moazami said. The analyst added Allstate has been denied "substantial" rate increase requests for homeowners insurance in some states, but the insurer is likely to appeal those decisions or file for lower rate increases.
Earnings could also receive a lift from additional share buybacks, Moazami said. The analyst expects Allstate to authorize repurchase programs in 2008 due to its "continued balance sheet strength and healthy cash flow." Allstate is likely to spend $3 billion on share repurchases in 2008, which would improve earnings per share by 40 cents, Moazami said.
Moazami set a price target of $62 for Allstate, up $1 from the previous target.
