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PGR's Growth Momentum Continues in Q4

Zacks Equity Research

The latest organic growth results of Progressive Corp. (PGR) for Nov 2013 reflects the company’s steady financial growth. It further raises optimism for modestly higher earnings in the ongoing fourth quarter of 2013.

Accordingly, net premiums earned rose 6% year over year in both Oct and Nov 2013, primarily driven by increased policies in force within the personal auto, special lines and personal lines insurance business. However, policies in force of the commercial lines continue to remain weak.

Nonetheless, Progressive generated total net income of $209.9 million or 35 cents per share in Oct and Nov 2013 against $154 million or 26 cents a share in the year-ago period.

Enjoying this growth momentum, last week the company also decided to share additional profits with its shareholders. As a result, the board of Progressive approved a special dividend of $1 per share. This special dividend will be paid in addition to the company’s annual variable dividend.

However, the amount of the annual dividend will be announced at Progressive’s year-end earnings release. Both the special and the annual dividends will be paid on Feb 7, 2014, to the shareholders of record as of Jan 29, 2014.

The special dividend will allow Progressive to return about $603 million to shareholders. Based on the company’s closing share price of $27 on Dec 11, 2013, the special dividend implies a yield of 3.7%.

The special dividend was declared on the back of Progressive’s sturdy balance sheet position and healthy cash flows. The company generated net earnings per share of 39 cents in the third quarter of 2013, outpacing the Zacks Consensus Estimate of 36 cents by 8.3%. Meanwhile, total net income for the first nine months of 2013 soared 32.5% year over year to $865.6 million. Also, operating cash flow during the same period increased 5% year over year to $1.75 billion.

Progressive Corp. presently carries a Zacks Rank #3 (Hold). However, better-ranked stocks in the property and casualty insurance include Alleghany Corp. (Y), Hallmark Financial Services Inc. (HALL) and First American Financial Corp. (FAF), each sporting a Zacks Rank #1 (Strong Buy).

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