Allstate Corp. (ALL)

Sandler O'Neill & Partners maintains buy; offers new estimate for 2011 earnings

Sandler O'Neill analyst Paul Newsome noted Allstate shares trade at 94% of book value. "It is unusual for a company that consistently delivers reasonable [returns on equity] (projected at 12% in 2010) to trade below book value," he wrote in a Dec. 29 note. The insurance company is expected to report earnings per share of $4.25 in 2010 and $4.40 in 2011, but Newsome warns that "Allstate's earnings can range widely." Depending on catastrophic losses and investment returns, Allstate's earnings could vary from $1.19 per share to $7.64 per share. One possible positive factor is that Allstate has reduced its insurance to coastal areas exposed to hurricanes and also purchased reinsurance that should help cover major losses. "In theory, Allstate's exposure to catastrophe losses should be less than in the past," Newsome wrote. The analyst has a 12-month price target of $37 on Allstate shares. H&R Block (HRB) Barrington Research upgrades to outperform from market perform; establishes price target Analyst Alexander Paris Jr. upgraded the tax preparation company on Dec. 29, citing modifications to the company's business plan that will allow it to capture additional market share and improving economic conditions that should permit the growth rate in the tax preparation sector to "eventually return" to its historical single-digit rates. Paris set a 12-month price target of $30 a share for H&R Block, about 40% higher than current levels. The analyst noted that the tax industry is facing short-term challenges: high unemployment is reducing the number of returns filed to the IRS, a continued shift from using tax preparers to do-it-yourself, and increased price sensitivity by consumers. The analyst said margins should improve as an expected 2% decline in the number of returns filed to the IRS will be offset by increased complexity due to 2009 tax law changes, resulting in a 2% to 4% increase in average revenue per return. Free cash flow is nearly twice reported net income, which will be returned to shareholders via dividends and an ongoing share repurchase program, Paris said. The company is also making management changes aimed at increasing client retention, leveraging the digital space, and curbing its rapid expansion of offices, Paris said. It has renegotiated leases at over 2,000 offices and will employ franchising as a growth strategy, he added. Cosan (CZZ) JPMorgan Chase (JPM) upgrades to overweight from neutral; raises price target Sugar prices are likely to fall by about 30% over the next 12 months, following a 129% jump in 2009, JPMorgan Chase analyst Debbie Bobovnikova said in a Dec. 29 research report. That should help Brazilian-based ethanol maker Cosan and others. JPMorgan Chase projects income of $970 million in 2010 and $1.26 billion in 2011. "CZZ is trading at an 18% to 31% discount to its NAV, post adjustment for voting rights. We believe this presents an interesting relative value opportunity vs. Cosan SA (its Brazilian unit), and we expect the gap to narrow," Bobovnikova wrote. The analyst has a December 2010 price target of $10.

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