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Progressive Surges 37% in a Year: What's Behind the Rally?

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That The Progressive Corporation (PGR - Free Report) stock is favored by investors is visibly substantiated by its share price movement. Shares of the company have surged nearly 37% in a year’s time, outperforming its industry's rally of roughly 12.5%.



Reasons Behind the Rally

The property and casualty (P&C) insurer has been witnessing premium growth over a considerable period of time with the company registering a 21% increase in the first half of 2018. This upside was attributable to a solid product offering. Given the increasing trend of premiums at its Personal and Commercial businesses, we expect this momentum to continue going forward.

Banking on the rising interest rates, the company has been experiencing better investment results over the past few years and this momentum was consistent during the first half of 2018 as well with the company, indicating nearly 34% improvement. Thus, we anticipate an increase in investment results moving ahead on the back of a slow and steady improvement in interest rates.

Riding on the progress in investment results and premium growth, the company has been experiencing higher revenues over the past few years and the trend continued into the first half as well with the metric climbing about 19%. We expect this top-line improvement to further accelerate the company’s overall growth.

Additionally, the P&C insurer has maintained a deep focus on customer retention on the basis of which, it has been able to exhibit its growing policy life expectancy (PLE) across all its business lines. Owing to the strength of competitive pricing as well as new and innovative offerings for its customers, we expect PLE to keep increasing in the near term.

Progressive has been putting in wholehearted efforts to boost its inorganic portfolio and the company’s expanded stake in ARX Holding Corp. stands testament to the same. We anticipate the insurer to invest in more buyouts, thus enhancing its bundling strategy (catering to clients who opt for both home and auto insurance).

The company has been able to add shareholder value through share buybacks and payment of annual cash dividends, courtesy of a robust capital position.

It has also been disbursing special dividends to investors over the last few years, thus evolving as an attractive pick for yield-seeking investors.

Other Noteworthy Factors

Progressive sports a Zacks Rank #1 (Strong Buy). With optimism surrounding the stock’s healthy performance, the Zacks Consensus Estimate for 2018 and 2019 earnings has been revised about 8.7% and 7.1% upward, respectively, over the past 60 days.

The Zacks Consensus Estimate for current-year earnings per share is pegged at $4.50, representing a significant year-over-year surge of about 71.1% on 19.8% stronger revenues of $32.1 billion. For 2019, the bottom line per share is pegged at $4.53, reflecting a year-over-year rise of 0.6% on 13.7% revenue growth of $36.5 billion.

Also, the company delivered a positive earnings surprise in all the last four quarters with an average beat of 9.19%. 

Other Stocks to Consider

Investors interested in other top-ranked stocks from the insurance industry can also consider Alleghany Corporation , NMI Holdings Inc. (NMIH - Free Report) and The Navigators Group, Inc. , 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 trailing four quarters with an average beat of 17.61%.

NMI Holdings provides private mortgage guaranty insurance services in the United States. The company pulled off positive surprises in all the trailing four quarters with an average positive surprise of 29.85%.

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and globally. The company came up with positive surprises in three of the preceding four quarters with an average earnings surprise of 19.54%.

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