Is Progressive Corp Still a Buy After Its Earnings Report?
Progressive Corp (NYSE:PGR) stock is up 35% year-to-date, which is very impressive given the fact that the U.S. was hammered by Hurricanes Harvey, Irma and Maria. But the real strength of PGR stock isn’t in homeowners or commercial property insurance, where it makes the top 20.
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Its bread and butter is auto insurance, where it ranks in the top 4. For motorcycles and commercial vehicles, it’s No. 1.
Certainly, there were plenty of cars damaged during the hurricanes, but those losses pale in comparison to housing and commercial buildings.
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While its YTD performance is impressive, PGR stock did drop after Harvey. But then went right back to its highs in September. It even hit its 52-week high in early October.
What’s more, even after its big run this year, Progressive stock is still trading at a price-to-earnings ratio of 20.
Earlier this week, PGR released its September numbers. Every month it releases the numbers from the trailing month and the results were impressive, given the chaotic events during the month.
The key profitability ratio for property and casualty (P&C) insurers like Progressive is what’s called their combined ratio. The company saw a spike in its usually strong combined ratio in August because of Hurricane Harvey. But by September, that number had almost come down to its normal range, which is a bullish sign moving forward.
Also, PGR continued to see double-digit growth in its policy growth for autos, both in direct sales and agency sales.
Another thing to remember about P&C insurers is they keep a large amount of their cash in highly liquid securities like U.S. Treasury bonds and notes. As rates rise, these holdings grow in value.
Bottom Line on PGR Stock
With the Federal Reserve committed to raising rates through at least the end of 2017 and likely into 2018, Progressive should see its bond portfolio rise in value, which should offset some of the losses it saw during the summer.
It’s also important to realize that PGR has been around since 1937, so it has seen its fair share of economic troubles. It’s also important to bear in mind that a good P&C insurer knows that some years will be more taxing on its balance sheet than others.
But with the sustained bull market and an expanding economy, Progressive should be in a very good position to continue its growth. And the fact that its main focus is on auto insurance means that the worst of any natural disasters won’t affect it as much as other P&C firms that are more focused on residential and commercial properties.
PGR stock also offers a decent 1.4% dividend, which isn’t compelling but does show that the company is shareholder friendly.
Slightly off its highs and likely to stay in this area until earnings are released in early November, this is a good entry point before PGR stock’s next leg up.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
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