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Progressive Corp. (PGR)


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We are downgrading Progressive Corp. (PGR) to Underperform from Neutral as the company continues to deliver lower net investment income and incur higher expenses. Progressive's first quarter earnings surpassed the Zacks Consensus Estimate by $0.03 but fell below the year-ago quarter.

Lower net investment gains and higher expenses resulted in lower numbers during the quarter. Considering the state of the economy, we expect significant pressure on underwriting margins and restriction in its top-line growth in the near term.

Our six-month target price of $20.00 equates to 13.8x our earnings estimate for 2012. Combined with $0.41 per share annual dividend this price target implies an expected negative total return of 7.3% over that period. This is consistent with our Underperform recommendation on the shares.

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