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Progressive (PGR) Gains 33% YTD: Will the Bull Run Continue?

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The Progressive Corporation (PGR - Free Report) shares have gained 33% year to date in contrast to the industry's decrease of 7.3% and the Finance sector’s decline of 17%. The Zacks S&P 500 composite has risen 3.9% in the said time frame. With market capitalization of $56.4 billion, average volume of shares traded in the last three months was 2.4 million.

Progressive continues to gain on higher premiums, solid policies in force, competitive rate and prudent underwriting.

The company has been effectively improving its return on equity (ROE) over years. ROE of 29% in the trailing twelve months was better than the industry average of 6.2%, reflecting the company’s efficiency in utilizing shareholders’ fund.  

The company currently has an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Can it Retain the Momentum?    

Progressive boasts being one of the largest auto insurance groups in the United States, the largest seller of motorcycle policies, the market leader in commercial auto insurance, and one of the top 15 homeowners carriers, based on premiums written.  Its net premium written has increased at a five-year CAGR of 12.8%. Given its expanded multi-product lineup, solid policies in force, focus on becoming a one-stop insurance destination, catering to customers opting for a combination of home and auto insurance; leadership in underwriting technology and application of quantitative analytics in pricing and risk selection should help retain the momentum.

Also, policy life expectancy (PLE), a measure for customer retention, has been exhibiting improvement over the last few years across all its business lines.

Over the past 10 years (2009-2019), the company’s combined ratio has averaged less than 93%, which compares favorably with the industry average combined ratio of more than 100%.

This Zacks Rank #3 (Hold) property and casualty insurer remains focused on acquisitions through which it can leverage its competitive prices to drive new sales growth. Progressive has been consistently putting in efforts to further penetrate customer households through cross-selling auto policies and Progressive Home Advantage (PHA). The acquisition of ARX Holding Corp in April 2020 will complement the company’s effort to reach and grow its bundled auto and home Robinsons consumer segment.

Over the longer term, the company intends leveraging scale and capitalizing on technology to lower operating expenses. This in turn should aid margin expansion.

The Zacks Consensus Estimate for 2020 is pegged at $6.75, indicating year-over-year increase of 0.5% on 9.5% higher revenues of $41.6 billion. The expected long-term earnings growth rate is pegged at 6.1%. It has a Growth Score of B. Growth Score analyzes growth prospects of a company.

Though the company’s debt-to-capital ratio has been fluctuating over the years, its times interest earned, identifying how efficiently the company can service debt has been improving. Times interest earned of 28.6% is higher than the industry average of 8.4%. The company targets debt-to-capital ratio below 30.

The company has been continually paying dividends since it went public in 1971. It has also been actively repurchasing shares. In the five years since Dec 31, 2014, Progressive shareholders’ returns were 25.1%, compared with 11.7% for the S&P 500.

Stocks to Consider

Some better-ranked companies in the insurance industry are Donegal Group (DGICA - Free Report) , RLI Corp (RLI - Free Report) and Fidelity National Financial (FNF - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Donegal Group delivered an earnings surprise of 134.62% in the last-reported quarter.

RLI came up with an earnings surprise of 71.11% in the last-reported quarter.

Fidelity National delivered an earnings surprise of 53.52% in the last-reported quarter.

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