Salomon Upgrades Allmerica to 'Buy'

Analyst Colin Devine says the firm's strong ability to raise capital is a solid asset, despite constraints at its life insurance operations

Salomon Smith Barney upgraded Allmerica Financial (AFC ) to buy from neutral.

Analyst Colin Devine tells says his pessimism is implied by a recent share price sell-off. He notes that while the company has statutory constraints at its life insurance operations, Allmerica also has, if needed, sufficient capital-raising flexibility via a debt offering, reinsurance or assets sales.

Devine says the company's second-quarter 10-Q report gave new information about its life insurance earnings, as well as its statutory capital sensitivity to stock market changes. Still, he says while the magnitude of the issues is more serious Allmerica than for its peers, he thinks these issues are already factored heavily into Allmerica's valuation.

Devine cut his 2002 earnings per share estimate to $1.35, and cut his 2003 earnings per share estimate to $3.20. He also trimmed his price target to $27 on the belief that earnings will remain pressured by the sluggish stock markets.

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