11:42 AM EST, 11/07/2024 (MT Newswires) -- Allstate ( ALL ) is expected to grow its auto policy-in-force by approximately 3.8% year-over-year in 2025 and around 2% in 2026 due to improved retention rates and an increase in new policies, Morgan Stanley said in a note Thursday.

The investment firm said that this expected growth will be driven by Allstate's ( ALL ) heightened ad spending and a more favorable pricing environment, with retention rates expected to rise from the current 84.7% to approximately 87% by 2026.

"We assume the ad spending effectiveness will hold up in 2024 and 2025 due to limited competition and also Allstate's ( ALL ) eventual return to market in New York, New Jersey and California," Morgan Stanley added.

Allstate's ( ALL ) retention rate will increase due to a deceleration in rate filings and improved auto underwriting profitability, the firm said.

Morgan Stanley said that its estimates for Allstate's ( ALL ) EPS in 2025 and 2026 are significantly higher than consensus, reflecting confidence in an improving combined ratio due to rate increases. The investment firm also projects a multiple expansion if the company successfully demonstrates growth.

The firm said Allstate ( ALL ) is now one of its top picks, while reiterating an overweight rating on the stock and boosting its price target to $228 from $220.

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