Progressive (PGR) Gains From Premium Growth, Cat Loss a Woe

The Progressive Corporation PGR has reputation in the market as an industry-leading independent agency writer when it comes to automobile insurance. Its excellent record confirms its successful client servicing, catering to diverse needs. Over the years, the customers have gained a lot from the company’s broad portfolio of varied insurance products and services and by retaining this favorable buzz among brokers, the Zacks Rank #1 (Strong Buy) P&C insurer consistently emerges stronger over time and looks set to maintain its hot streak in the near future.

Growth Drivers

Given the credibility of its product portfolio, Progressive has been witnessing premium growth over a considerable period of time and we expect the company to sustain this momentum in the near term. Interestingly, the company’s Personal and Commercial business lines have also been displaying an upward trend pertaining to premiums, driven by its expanded multi-product offering and competitive market rates.

Improvement in investment income as well as premiums has enabled the company to grow its revenues over an extended time frame and we expect this trend to continue, going forward.

Also, the company’s efforts in boosting customer retention has led to improving policy life expectancy (PLE) over the past few years with the company anticipating to report higher PLE in the upcoming quarters. On the back of competitive pricing, the company strives to ensure that its consumer retention and innovative product offerings address clients’ needs.

Further, a robust capital position has allowed the company to enhance shareholder value via dividend payouts, which includes special dividends as well as share buybacks. With respect to dividend payment, the P&C insurer has registered a five-year CAGR (2013-2018) of nearly 41%. Hence, these shareholder-friendly moves continue to raise optimism among investors.

In future, we expect Progressive to capitalize on cross-selling auto policies and Progressive Home Advantage (PHA) to better its bundled strategy that will carve out the course for satisfying customers’ need in choosing a combination of home and auto insurance. Also, judicious buyouts will help the company boost its bundling strategy, which might result in policies in force growth in the short term.

An Outperformer: Shares of Progressive have gained 9.5% year to date, outperforming the industry’s 0.2% decrease. We believe, the company’s diverse product offering, strategic initiatives, premium growth and a solid balance sheet will drive the stock higher in the near term.

 

Growth Projections: The stock has seen the Zacks Consensus Estimate for current-year earnings per share being pegged at $4 on revenues of $31.76 billion. While the top line reflects a year-over-year rise of 18.6%, the bottom line represents a 52.1% increase. For 2019, the consensus mark for the metric stands at $4.11 on $35.94 billion revenues. While revenues translate into a 13.2% improvement, earnings depict 2.7% growth.

Northbound Estimate Revisions: The company has witnessed an upward estimate revision for 2018 and 2019 with the estimates moving north by nearly 7.5% and 6.5%, respectively, over the last 60 days.

Positive Earnings Surprise History: Progressive flaunts an encouraging earnings surprise history, having outshined the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 6.23%.

Near-Term Headwinds

Being a P&C insurer, the company has been enduring catastrophe loss for a considerable period of time, thereby hurting the company’s underwriting profitability with the combined ratio having deteriorated in the last few years.

Also, mounting expenses, mainly due to higher losses and settlement expenses and policy acquisition costs persist to restrict the operating margin expansion.

Other Stocks to Consider

Investors interested in other stocks worth considering from the same space can also check out Alleghany Corporation Y, The Navigators Group, Inc. NAVG and RLI Corp. RLI, each sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alleghany provides property and casualty reinsurance and insurance products in the United States and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 17.61%.

Navigators Group underwrites marine, property and casualty, and professional liability insurance products and services in the United States and worldwide. The company came up with positive earnings surprises in three of the trailing four quarters with an average beat of 14.66%.  

RLI Corp. underwrites property and casualty insurance in the United States and globally. The company pulled off positive surprises in each of the last four quarters with an average beat of 33.65%.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

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
 
RLI Corp. (RLI) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Alleghany Corporation (Y) : Free Stock Analysis Report
 
The Navigators Group, Inc. (NAVG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research