Allstate To Lay Off 3,800 Employees

Allstate Corp. announced it will lay off about 3,800 employees and shut down offices. The job reductions will primarily affect claims, sales, service and support functions, and will help the property and casualty insurance provider to lower costs to maintain margins.

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The restructuring plan is a part of Allstate’s (ALL) transformative growth plan, and seeks “to increase personal property-liability market share by expanding customer access, improving customer value and investing in marketing and technology,” the company said. Allstate’s CEO Tom Wilson said “Implementing this plan is difficult as we still deal with the impact of the pandemic but necessary to provide customers the best value.”

The company expects the restructuring to result in pre-tax charges of around $290 million, with about $210 million to $220 million expected to incur in 3Q, which it is set to release on Nov. 5. It also expects a pre-tax charge of $50 million to $60 million to be recognized in 4Q, with the remaining charges to be incurred in the first half of 2021. Additionally, it projects real estate exit costs of about $80 million, pre-tax, from office closures. The charges will reduce both net income and adjusted net income, the company said. (See ALL stock analysis on TipRanks).

On Sept. 22, KBW analyst Meyer Shields upgraded Allstate to Buy from Hold and raised the price target to $108 (14.7% upside potential) from $107, citing the “near-record valuation gap” in comparison to its peer Progressive Corp. The analyst noted that Allstate has a lower valuation than Progressive and thinks the current valuation gap underestimates the strategic benefits of Allstate’s increasing focus on the independent agency channel.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 4 Buys and 3 Holds. The average price target of $117.83 implies upside potential of about 25.2%. Shares have declined 16.3% year-to-date.