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AllState to Buy SquareTrade, Improve Customer Protection


The AllState Corporation ALL recently inked a deal to buy SquareTrade. The acquiree provides consumer protection plan across the U.S. The rapidly growing privately held company is slated to be acquired for approximately $1.4 billion from a group of shareholders, including Bain Capital Private Equity and Bain Capital Ventures. The transaction, which is subject to regulatory approvals and customary closing conditions, is expected to be closed in Jan 2017.

The acquisition of SquareTrade will be funded with corporate cash and debt issuance. AllState believes that this merger will have impact on its existing share repurchase program. Post acquisition, this transaction will be dilutive to the company’s earnings per share for the next three years.

With this acquisition, SquareTrade is likely to be exposed to a vast market with immense scope and opportunities. The company prioritizes its customers’ needs and preferences and the latest acquisition is in keeping with the company’s consumer-focused approach. SquareTrade connects its customers with the rest of the world by fixing their broken television, cell phone, computers or other electronic gadgets. The company’s protection plans are distributed by many of America's major retailers like Amazon, Costco, Sam's Club, Target, Staples, Office Depot. Hence, the aforesaid deal will integrate AllState’s capabilities with that of SquareTrade’s expertise.

Also, SquareTrade's commendable customer service, innovative product design, analytics and supply-chain logistics will boost AllState’s already strong revenue base and innovative strategies. In addition, this acquisition will expand Allstate's customer relationships with 25 million protection plans for consumer electronics and connected devices.

AllState regularly takes up initiatives to enhance customers’ value and retain investors’ confidence on the stock. However, the huge catastrophe loss incurred by the company has been adversely impacting its property and casualty business over last few quarters. Year to date, the stock has gained 16.03%, which is much lower than 17.23% gained by the Zacks-categorized Insurance-Property and Casualty Industry.


Zacks Rank and Stocks to Consider

AllState presently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the insurance industry that warrant a look include Alleghany Corporation Y, First American Financial Corporation FAF and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany Corporation deals with Property & Casualty reinsurance and insurance businesses in the U.S. and internationally. The company recorded positive surprises in three of the last four quarters with an average beat of 20.52%.

First American Financial is a leading provider of title insurance and settlement services to the real estate and mortgage industries in the U.S. The company beat estimates in all the trailing last four quarters with an average beat of 14.32%

Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It posted positive surprises in all of the last four quarters with an average beat of 9.27%.

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