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Here's Why You Should Hold Progressive (PGR) in Your Portfolio

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Progressive Corporation (PGR - Free Report) has been showing gaining momentum over the past many quarters on the back of new business volume, higher premiums and underwriting profitability.

Earnings Surprise History

Progressive has a decent earnings surprise history. It beat estimates in three of the last four quarters and missed in one, with the average being 5.65%.

Zacks Rank & Price Performance

Progressive currently carries a Zacks Rank #3 (Hold). In the past year, the stock has rallied 19.4% compared with the industry’s increase of 36%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Style Score

The company is well poised for progress, as is evident from its favorable VGM Score of B. Here V stands for Value, G for Growth and M for Momentum, with the score being a weighted combination of all three factors.

Return on Equity (ROE)

The company’s trailing 12-month return on equity (ROE) of 25.4% reflects its growth potential. It compares favorably with the industry average of 5.6%.

Business Tailwinds

Progressive has been witnessing solid premium and policy in-force growth across its Personal Lines, Commercial Lines and Property operating segments.

The property and casualty insurer continued to witness robust unit growth with policies in force (PIFs) that grew 12%, year over year in the first quarter, and reported double-digit growth in personal auto, special lines, and commercial lines policies in force.

The combination of pandemic recovery, high new business volume levels, and higher premiums in the Transportation Network Company (TNC) business will continue to benefit the premium growth in all its business segments.

Progressive’s buyout of Protective Insurance Corporation will boost its Commercial Lines product portfolio with additional product lines, and strengthen its capabilities. The deal is expected to enhance workers’ compensation coverage for the transportation industry, which accounts for a major portion of Commercial Lines premiums growth. The buyout will also enable the insurer to meet the requirements of commercial customers.

Riding on the underwriting profitability in the Personal and Commercial Lines of business, the insurer reported a healthy combined ratio of 89.3 in the first quarter.

Progressive has a reinsurance program in Property business, intended to limit the risk to the extent of coverage purchased. Under its occurrence excessive loss reinsurance program, it has an $80 million retention threshold from a single storm.

Furthermore, Progressive boasts a solid cash balance. It exited the first quarter with cash and cash equivalents worth $123 million, which increased 61% from the 2020-end level. Notably, in the first quarter of 2021, the company’s net cash provided by operating activities increased 61% year over year.

Its debt-to-total capital ratio remained below 30% during all reported periods and improved 410 bps to 23.2% at first-quarter 2021-end. Its times interest earned, a measure to identify the company ability to service debt, of 37.2 is good compared with the industry’s average of 32.4 .

Stocks to Consider

Some better-ranked stocks in the property and casualty include HCI Group, Inc. (HCI - Free Report) , Cincinnati Financial Corporation (CINF - Free Report) and Alleghany Corporation (Y - 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.

The bottom line of HCI Group surpassed estimates in three of the last four quarters and missed in the other one, the average being 42.91%.

Cincinnati Financial surpassed estimates in three of the last four quarters and missed in the other one, the average earnings surprise being 17.63%.

Alleghany’s earnings surpassed estimates in each of the last four quarters, the average being 128.63%.

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