Should Progressive Be in Your Portfolio Post Q3 Earnings?

The Progressive Corporation PGR reported solid third-quarter 2024 results, wherein the top line and the bottom line beat the Zacks Consensus Estimate. Net premiums written improved 25%, driven by the strong performance of operating businesses. Combined ratio — the percentage of premiums paid out as claims and expenses — improved 340 basis points (bps) from the prior-year quarter’s level to 89.

PGR is one of the country’s largest auto insurance groups, the largest seller of motorcycle and boat policies, the market leader in commercial auto insurance and one of the top 15 homeowners carriers based on premiums written. A solid market presence, a convincing portfolio of products and services, and underwriting and operational expertise should help this insurer deliver steady profitability. 

A Sneak Peek Into Q3 Results

Third-quarter 2024 earnings per share of $3.97 beat the Zacks Consensus Estimate of $3.40. The bottom line more than doubled year over year. Operating revenues of $19.5 billion improved 24.9% year over year and beat the consensus estimate by 2.6%.

Policies in force were solid in the Personal Auto segment, up 17% year over year to 22.8 million. Special Lines improved 9% to 6.5 million. In the Personal Auto segment, Direct Auto increased 20% year over year to 13.4 million, while Agency Auto increased 19% to 9.4 million. Progressive’s Commercial Auto segment rose 2% year over year to 1.1 million. The Property business had 3.5 million policies in force, up 14%.

Investment Thesis

Banking on the strength of its compelling product portfolio, its leadership position, healthy policies in force, better pricing and a solid retention ratio premium should continue to rise.

Prioritizing auto bundles and lowering exposure to risky properties while increasing segmentation through the rollout of the newest product model bodes well for growth.

Policy life expectancy (PLE), a measure of customer retention, has improved in the last few years across all business lines. Offering consumers a distinctive new auto insurance option along with competitive pricing should help Progressive deliver solid PLE. 

Prudent underwriting coupled with favorable reserve development supports Progressive in delivering a better combined ratio.  Also, its reinsurance program shields the balance sheet from the impact of catastrophe events and active weather years. The insurer’s combined ratio averaged less than 93% over the last 10 years and compared favorably with the industry average of more than 100%. 

PGR strategically maintains an investment portfolio skewed toward U.S. Treasuries. Its solid capital position helps it navigate a volatile market and invest in growth opportunities. 

In tandem with the industry’s trends of making continuous technological investments, Progressive has also been investing in the ramp-up of digitalization.

Estimate Movements Instill Confidence

Estimates for Progressive’s 2024 and 2025 earnings have moved up 0.6% each over the past seven days, reflecting analysts’ optimism.

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Growth Story Remains Impressive

The Zacks Consensus Estimate for Progressive’s 2024 earnings is pegged at $13.35 per share, indicating an increase of 118.5% from the year-ago reported figure on 20.2% higher revenues of $74.2 billion. The consensus estimate for 2025 earnings is pegged at $13.64 per share, indicating a year-over-year increase of 2.2% on 15.1% higher revenues of $85.5 billion. The long-term earnings growth rate is currently pegged at 27.5%, better than the industry average of 11%. It has a Growth Score of B.

An Outperformer 

Shares of Progressive have surged 57.8% year to date, outperforming the industry’s increase of 30.3%, the Finance sector’s rise of 19% and the Zacks S&P 500 composite’s increase of 22.6% in the said time frame. The outperformance is backed by a compelling product portfolio, operational expertise and a solid capital position. 

PGR vs Industry, Sector, S&P 500

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Shares of Progressive have also outperformed some other auto insurers like Allstate Corporation ALL and Travelers Companies TRV, which have rallied 39.6% and 39%, respectively, in a year.

PGR Trading Above 50-Day Moving Average

Progressive shares are trading above the 50-day moving average, indicating a bullish trend. 

PGR Price Movement Vs. 50-Day Moving Average

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Average Target Price for PGR Suggests a Solid Upside

Based on short-term price targets offered by 17 analysts, the Zacks average price target is at $280.06 per share. The average suggests a potential 11.4% upside from Thursday’s closing price.

 

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PGR's Expensive Valuation

PGR is currently expensive. It is trading at a P/B multiple of 6.31, higher than the industry average of 1.64. Given its market-leading presence, growth prospects, rising estimates and better return on invested capital, its premium valuation is justified.

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Progressive’s Favorable Return on Capital

Return on invested capital (ROIC) has been increasing over the last few quarters as the company raised its capital investment over the same time frame. This reflects PGR’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 23.1%, better than the industry average of 6.1%
 

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Also, return on equity for the trailing 12 months was 35.2%, comparing favorably with the industry’s 8%. This reflects its efficiency in utilizing shareholders’ funds. 

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To Conclude

Progressive remains committed to enhancing customers’ experience through improved services, which, in turn, helps it grow policies in force through better retention and the addition of new customers. Efforts to increase the share of Progressive auto and home bundled households, investments in mobile applications and the rollout of new products in a higher number of states are some of the strategic infinitives taken by PGR. 

Progressive has an impressive history of paying dividends uninterruptedly since 1971. Its solid growth prospects, northbound estimate revisions, decent earnings surprise history and its VGM Score of B instill confidence in the stock. 

Therefore, despite its premium valuation, this Zacks Rank #1 (Strong Buy) stock remains a strong contender for addition to one’s portfolio.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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The Travelers Companies, Inc. (TRV): Free Stock Analysis Report
 
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The Progressive Corporation (PGR): Free Stock Analysis Report

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