Progressive's October Earnings Rise: Here's How to Play the Stock

The Progressive Corporation PGR reported solid October 2024 results, wherein both the top line and the bottom lines increased year over year. Net premiums written improved 19%, driven by the strong performance of operating businesses. Combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 240 basis points (bps) from the prior-year quarter’s level to 94.1.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. 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 Monthly ResultsOctober earnings per share of 69 cents increased 1% year over year. Operating revenues of $6.8 billion improved 19.6% year over year. Net premiums earned increased 19%.Policies in force were solid in the Personal Auto segment, up 19% year over year to 23.2 million. Special Lines improved 9% to 6.5 million. In the Personal Auto segment, Direct Auto increased 23% year over year to 13.7 million, while Agency Auto increased 15% to 9.6 million. Progressive’s Commercial Auto segment rose 3% year over year to 1.1 million. The Property business had 3.5 million policies in force, up 14%.Total expenses increased 21.7% year over year to $6.2 billion, attributable to a 15.8% higher loss and loss adjustment expenses, a 16.8% increase in policy acquisition costs and a 71.4% jump in other underwriting expenses.Investment ThesisProgressive’s premiums, the main driver of the top line, are poised to grow on the strength of its compelling product portfolio, leadership position, healthy policies in force, better pricing and a solid retention ratio. The leading auto insurer intends to fuel growth by prioritizing auto bundles, lowering exposure to risky properties and increasing segmentation through the rollout of new products.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. 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. 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. Progressive has also been investing in the ramp-up of digitalization. This, in turn, helps margin expansion.Mixed Analyst Sentiment on PGRFive of the 11 analysts covering the stock lowered 2024 estimates, while one raised the same in the past 30 days. For 2025, five analysts increased their estimates while one revised the same lower over the same time frame. Thus, estimates for Progressive’s 2024 earnings have declined 1.7%, while the same for 2025 have risen 0.6% over the past 30 days. Image Source: Zacks Investment ResearchPGR's Growth Story Remains ImpressiveThe Zacks Consensus Estimate for Progressive’s 2024 earnings is pegged at $13.09 per share, indicating an increase of 114.2% from the year-ago reported figure on 20.5% higher revenues of $74.4 billion. The consensus estimate for 2025 earnings is pegged at $13.74 per share, indicating a year-over-year increase of 5% on 15.7% higher revenues of $86.1 billion. The long-term earnings growth rate is currently pegged at 27.5%, better than the industry average of 11.3%. It has a Growth Score of A.PGR: An OutperformerShares of Progressive have surged 61% year to date, outperforming the industry’s increase of 31.5%, the Finance sector’s rise of 20.7% and the Zacks S&P 500 composite’s increase of 24.3% 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 ResearchShares 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 AverageProgressive shares are trading above the 50-day moving average, indicating a bullish trend.PGR Price Movement Vs. 50-Day Moving AverageImage Source: Zacks Investment ResearchAverage Target Price for PGR Suggests a Solid UpsideBased 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 9.5% upside from Monday’s closing price.Image Source: Zacks Investment ResearchExpensive ValuationPGR is currently expensive. It is trading at a P/B multiple of 6.53, higher than the industry average of 1.59. Given its market-leading presence, growth prospects, rising estimates and better return on invested capital, its premium valuation is justified.Image Source: Zacks Investment ResearchProgressive’s Favorable Return on CapitalReturn on equity (ROE) for the trailing 12 months was 33.1%, 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 24.1%, better than the industry average of 5.8%.Image Source: Zacks Investment ResearchTo ConcludeProgressive’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. The insurer’s 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 should fuel growth. Progressive has an impressive history of paying dividends uninterruptedly since 1971. Its solid growth prospects, decent earnings surprise history and its VGM Score of B instill confidence in the stock. Given the premium valuation and mixed analyst sentiments, it is better to stay cautious on this Zacks Rank #3 (Hold) for some time and wait for a better entry point.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 +23.7% 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