Progressive's January Earnings Rise: Time to Buy the Stock?

The Progressive Corporation PGR reported solid January 2025 results, wherein both the top and bottom lines increased year over year. Net premiums written improved 18%, driven by the strong performance of operating businesses. Combined ratio — the percentage of premiums paid out as claims and expenses — improved 320 basis points (bps) from the prior-year quarter’s level to 84.1.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. This insurer is set to deliver steady profitability given its solid market presence, a convincing portfolio of products and services, and underwriting and operational expertise. A Sneak Peek Into PGR’s January ResultsPGR’s January 2025 earnings per share of $1.90 improved 61% year over year.  Operating revenues increased 22.8% year over year to $6.9 billion.Policies in force were solid in the Personal Lines segment, increasing 18% from the year-ago month to 33.8 million. Special Lines improved 9% to 6.5 million. In the Personal Auto segment, Direct Auto increased 25% year over year to 14.2 million, while Agency Auto increased 18% to 9.9 million. Progressive’s Commercial Auto segment rose 5% year over year to 1.1 million. The Property business had 3.5 million policies in force, up 13%.Investment ThesisA compelling product portfolio, leadership position, healthy policies in force, better pricing and a solid retention ratio should continue to drive premium improvement for Progressive. Policy life expectancy (PLE), a measure of customer retention, has improved in the last few years across all business lines. Distinctive new auto insurance options, along with competitive pricing, should help sustain improvement in PLE.Progressive is prioritizing auto bundles, lowering exposure to risky properties and increasing segmentation through the rollout of new products to drive growth. PGR remains focused on increasing the share of auto and home bundled households, investing in mobile applications, and rolling out new products in a higher number of states. Over a decade, PGR’s combined ratio has averaged less than 93%, which compares favorably with the industry average combined ratio of more than 100%. Prudent underwriting coupled with favorable reserve development should help the company maintain the momentum. Also, its reinsurance program shields the balance sheet from the impact of catastrophe events and active weather years. Its solid cash flow ensures continuous investment in digitalization to improve margins. PGR is continually enhancing its book value and lowering leverage, banking on operational expertise. Though its leverage compares unfavorably with the industry average, the times interest earned outperforms the industry. Optimistic Analyst Sentiment on PGRFour analysts raised 2025 estimates, while one raised the same for 2026 in the past seven days. The Zacks Consensus Estimate for 2025 has moved 1.7% higher, while the same for 2026 has moved 1 cent north in the same time frame.Image Source: Zacks Investment ResearchPGR’s Growth Story The Zacks Consensus Estimate for Progressive’s 2025 earnings is pegged at $14.68 per share, indicating an increase of 4.5% from the year-ago reported figure on 16.6% higher revenues of $87.5 billion. The consensus estimate for 2026 earnings is pegged at $15.40 per share, indicating a year-over-year increase of 4.9% on 10.1% higher revenues of $96.4 billion. The long-term earnings growth rate is currently pegged at 10.7%, better than the industry average of 7.6%. The company has a Growth Score of A.Progressive’s YTD Performance Shares of Progressive have gained 11.8% year to date, outperforming the industry’s increase of 5.1%, the Finance sector’s rise of 5.5%  and the Zacks S&P 500 composite’s increase of 3.9% 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 500Image Source: Zacks Investment ResearchPGR Trading Above 14-Day Moving AverageProgressive shares are trading above the 14-day moving average, indicating a bullish trend. PGR Price Movement Vs. 14-Day Moving AverageImage Source: Zacks Investment ResearchAverage Target Price for PGR Suggests a Solid UpsideBased on short-term price targets offered by 18 analysts, the Zacks average price target is $284.94 per share. The average suggests a potential 5.7% upside from Thursday’s closing price.Image Source: Zacks Investment ResearchExpensive ValuationPGR is currently expensive. It is trading at a P/B multiple of 6.13, 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. Image Source: Zacks Investment ResearchShares of some other auto insurers like Allstate Corporation ALL and Travelers Companies TRV are also trading at a premium to the industry.Progressive’s Favorable Return on CapitalReturn on equity for the trailing 12 months was 33.8%, comparing favorably with the industry’s 7.6%. This reflects its efficiency in utilizing shareholders’ funds.   Image Source: Zacks Investment ResearchAlso, 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 23.2%, better than the industry average of 5.8%.Image Source: Zacks Investment ResearchWhat Should You Do With PGR Stock?Progressive’s leadership position, coupled with a compelling product and service portfolio, continues to enhance customers’ experience, which, in turn, helps it grow policies in force through better retention and the addition of new customers. Growth projections and positive analyst sentiment fuel optimism for PGR.Progressive has an impressive history of paying dividends uninterruptedly since 1971. A VGM Score of A instills confidence in the stock. Thus, despite its premium valuation, this Zacks Rank #1 (Strong Buy) stock remains investors’ favorite and therefore worth adding to their portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Travelers Companies, Inc. (TRV): Free Stock Analysis Report The Allstate Corporation (ALL): Free Stock Analysis Report The Progressive Corporation (PGR): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks