Allstate Corp (ALL)

Total return at 5 years: 23.1%/year = 21.8% appreciation + 1.3% dividend. The target price ($711) is ex-dividend; the $26 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $1,417 · Multiples $593) exceeds the market price ($265).

Today — with margin of safety: at $265 trades ~55.3% below its value discounted to today (~$593) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($711) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($265) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-28.4%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$2.5 bn of owner earnings in year 5 (vs ~$16.8 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 (TTM to June 30, 2026) uses the net income applicable to common shareholders the company itself reports as TTM ($13.189bn, ROE 49.1%), reflecting the structural reversal in underwriting after the 2021-2022 rate crisis: the underlying combined ratio (ex-catastrophes, ex-reserve development) has held stable at 79-80% for several quarters, evidence that the improvement is real rather than an isolated data point. The TTM, however, also carries about 5-6 points of favorable reserve development and unusually high investment gains ($1.055bn in the quarter) that do not extrapolate. Year 1 normalizes about 22% below the TTM, removing that favorable cyclical component and assuming a more typical catastrophe year, and from there the path grows about 5% annually, supported by growing policies in force (+2-4%) and an $87.8bn investment portfolio in expansion. Shares decline 3.9% annually, the rate revealed over the trailing twelve months (2Q26 release), without extrapolating the more aggressive buyback pace just announced ($1bn/quarter). Book value compounds quickly because total payout to shareholders (dividend plus buybacks, about $3.5bn TTM) is only about 27% of earnings, leaving substantial retained capital.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $711 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $265, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $711 in 5 years plus $26 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $593. Against the current market price ($265), the margin of safety is 55.3% (trades below the maximum → there is margin) and the total return at that price would be 23.1% annually.

• Entry multiple vs. historical band. Today's price implies 5× times TTM earnings, well below the insurance archetype's historical 11-15x band, even with the cyclical component normalized.
• Sensitivity to the underwriting cycle. The base case already assumes a roughly 22% downward normalization from the TTM; the result still shows an ample margin of safety even under that conservative assumption.
• Dependence on market re-rating. A good part of the projected return depends on the market eventually trusting the durability of the improvement and expanding the multiple — it is not only an earnings-growth story.

• Cash generation. Trailing-twelve-month operating cash flow ($12.5bn) is strong and growing, though it includes the volatility inherent to an insurer with an actively managed investment portfolio.
• Sustained return on capital. TTM ROE of 49.1% is well above the 10% bar, and even normalized for the cyclical component it remains comfortably above it across the entire horizon.
• Reinvestment runway. Organic growth (policies plus rate) is the main reinvestment avenue; there is no evidence of a meaningful M&A or physical capital expansion runway — this is a business that returns capital more than it reinvests in assets.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The three drivers show the price-times-volume combination that explains the recovery: average auto and home premium capture the price side (the post-2021-2022-crisis rate correction), while auto policies in force show that the price increase did not come at the cost of losing customers — new business is, in fact, accelerating. This combination is what supports the case that the combined-ratio improvement is structural: it was not achieved by sacrificing volume, but with a customer base that keeps growing at higher, more profitable prices.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Policy volume. Auto and home policies growing 2.8% and 2.9% year over year respectively in 2Q26, with new business accelerating sharply (+8.8% and +16.4%).
• Price / rate. Average home premium keeps rising sharply (+12% in 2025); auto has already stabilized (+0.8%), a sign the cycle of aggressive rate increases ended first in that line.
• Protection Services. A small segment (5% of revenue) but consistently growing (+7.5-7.8%), with Arity as a data optionality not yet monetized at scale.

• Recurrence and predictability. Auto and home insurance is a recurring renewal product with high retention, though catastrophic claims introduce year-to-year results volatility.
• Pricing power. Average premium rose 12% in home and a cumulative 25% in auto between 2023 and 2025 without slowing policy growth — direct evidence of pricing power exercised successfully.
• Operating leverage. Leverage here is more financial (investment float) than operating in the traditional sense; underwriting expenses do not scale markedly favorably with volume.
• Behavior in recession/adverse cycle. The 2021-2022 track record itself shows that a claims-inflation cycle poorly covered by rate can produce underwriting losses for two straight years.

• ✓Underwriting profitability (combined ratio)Combined ratio 84.3%
• !Reserve adequacy (development)Adverse -5.8% pts
• !Catastrophe exposure10.0% pts of the combined ratio
• ✓Book value compounding+50%/yr · core ROE 44%
• ✓Float return (investment income)$3.9 bn on $87.8 bn of float

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Holding-company leverage. Total debt of about $8bn against $31.7bn of common equity and an $87.8bn investment portfolio — low leverage for an insurer of this scale.
• Dependence on subsidiary dividends. The holding company depends on dividends from its regulated insurance subsidiary (Illinois) to pay dividends, service debt, and fund buybacks, subject to regulatory limits.
• Catastrophe exposure. Modeled probable maximum loss of about $3.1bn (1-in-100-year) net of reinsurance; reinsurance is in place, but an extreme event could exceed current coverage limits.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. High retention (73% of earnings) to rebuild capital, with buybacks accelerating to $1bn/quarter and no M&A — two non-core businesses sold in 2025 to focus the portfolio.
• Alignment. The directors and executives group owns 1.55% of shares; the CEO has spent nearly two decades in the role and also chairs the board, a concentration of roles worth monitoring.
• Communication candor. The 2Q26 release breaks out in detail the effect of catastrophes and reserve development on the combined ratio, allowing the structural improvement to be distinguished from the quarter's cyclical luck.

• Recent memory of the 2021-2022 underwriting crisis still anchors market perception, which has yet to fully trust that the underlying combined ratio stable at 79-80% is the new regime rather than a high point of the cycle
• Recent GAAP results are loaded with non-operating items — gains from the sale of two businesses in 2025 ($1.14bn after tax) and volatile investment gains ($1.055bn in 2Q26) — that make it harder to read core underwriting earnings at a glance
• Only a few quarters of consistently strong results since the rate correction: the market tends to demand several years of track record before re-rating an insurer coming off losses

None of these three sources implies the business is broken: in the method's taxonomy, they are missing buyers (post-crisis confidence gap, no analyst-coverage catalyst forcing a re-rating) plus a component of motivated sellers (the non-operating noise in recent GAAP results). The second-quarter 2026 release itself confirms that the underlying combined ratio has held stable for several quarters, not deteriorated — this thesis's base case does not depend on the market being wrong about the numbers, only on the market not yet fully believing them.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +15%/year (+104% total): the margin of safety protects the downside. The bull (+38%/year, +396% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Catastrophe cycle. The largest and least controllable risk: a severe season can erase several years of underwriting improvement in a single quarter.
• Rate regulation. Prior approval in most large states can delay passing costs through to price; California already showed the risk materializing with its 2025 moratorium.
• Reserve reversal. Recent quarters' favorable reserve development (4.6-5.8 points of combined-ratio improvement) can reverse if claims inflation accelerates.
• Portfolio market risk. The $87.8bn portfolio includes equities, credit, and private equity/real estate assets with quarterly volatility the company itself acknowledges.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROE 44% above the 10% bar, with a +55% margin → a quality business at a good price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 1.0 → cheap for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -28% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +14%/yr, bull-scenario ceiling +37%/yr over 5y and a +55% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -28%, within what we project (5%) — the story squares with the numbers.