An independent two-stage DCF analysis by a frontier AI model.
Allstate has navigated a difficult period of surging auto repair costs by aggressively pushing through necessary premium rate increases. With $67.69B in top-line sales, these rate hikes are now dramatically expanding margins, as evidenced by a 103% jump in earnings and the generation of nearly $9B in free cash flow.
At a current price of $204.07, the market still appears to be anchoring to past underwriting struggles rather than the newly stabilized, highly profitable run rate. The company's massive investment portfolio and ability to generate significant cash from operations suggest the stock is undervalued.
A 5.0% growth rate is based on Allstate's recent successful rate actions, which led to a 103% surge in earnings. While $8.92B in FCF is strong, this growth rate normalizes expectations as the auto insurance inflation cycle stabilizes and premium growth slows to historic averages.
A 9.0% discount rate is utilized. This reflects the inherent volatility of the property and casualty insurance business model, including exposure to unpredictable catastrophic weather events and regulatory rate pushback.
A 2.5% terminal rate assumes the company will grow slightly faster than long-term inflation, driven by its pricing power and massive investment float.
Intrinsic value per share under varying discount rate and terminal growth rate assumptions.
| WACC ↓ / Terminal → | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 1.5% | $313.36 | $265.15 | $229.80 | $202.76 | $181.42 |
| 2.0% | $344.70 | $287.25 | $246.21 | $215.43 | $191.50 |
| 2.5% | $382.99 | $313.36 | $265.15 | $229.80 | $202.76 |
| 3.0% | $430.87 | $344.70 | $287.25 | $246.21 | $215.43 |
| 3.5% | $492.42 | $382.99 | $313.36 | $265.15 | $229.80 |
■ Undervalued vs current price ■ Overvalued vs current price
While recent earnings growth was massive (103%), a 5.0% FCF growth rate projects a normalized environment where the benefits of recent rate hikes are sustained, but explosive growth tapers off.
A 9.0% discount rate was selected, accounting for the cyclical risks inherent in property and casualty insurance, particularly weather-related catastrophes.
The current market price of $204.07 does not fully reflect the $8.92B in free cash flow the company is currently generating. The DCF model suggests an intrinsic value closer to $265.
Disclaimer: The numbers presented on this page are for educational and entertainment purposes only. They are the result of a deterministic mathematical model fed with assumptions generated by an Artificial Intelligence (Gemini 3.1). This does not constitute investment advice. Always conduct your own due diligence before investing in the stock market.