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Progressive Corp. or Travelers Companies: Which Scores Higher?

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Progressive Corp. or Travelers Companies: Which Scores Higher?

On comparative judgment, we try and find out which stock -- Progressive Corp (PGR) or Travelers Companies (TRV) -- has stronger chances to fare better in terms of fundamentals.

Property and casualty insurance industry has again endured the wrath of Mother Nature with the advent of hurricanes Florence and Lane. The third quarter of a year generally bears the brunt of unprecedented catastrophes as it marks the peak of hurricane season.

Nonetheless, factors like better pricing, favorable rate environment, sturdy capital surplus, strengthening labor market and improving employment scenario poise the industry well for improved performances. Property and Casualty Insurance industry is ranked at #99, representing the top 39% of the Zacks Industry Rank for 255 plus industries.  

After suffering a soft pricing market for 19 consecutive quarters, insurers started to raise prices from the fourth quarter of 2018. This should help them sustain the underwriting profitability despite claims stemming from catastrophe events. Also, occurrence of natural disasters might lead to an accelerated rate of policy renewals and more new policy writings driving premiums higher.

Accelerated pace of hikes should boost investment results. A higher net investment income in turn is estimated to contribute to top-line improvement.

Also, a lower tax should help expand margins as well as widen scope for more capital deployment via dividend hikes, special dividends and share buybacks.

The industry has rallied 16.1% quarter to date, outperforming the Zacks S&P 500 Composite’s increase of 6.7%. Also, the industry is currently undervalued compared with the Zacks S&P 500 Composite.

The industry’s price to book value multiple of 1.5 is much lower than the Zacks S&P 500 Composite’s reading of 4.1. Given the growth prospects and undervaluation, this space offers attractive investment opportunities.



Here we focus on two property and casualty insurers, namely The Progressive Corp. PGR and The Travelers Companies, Inc. TRV

While the former with a market capitalization of $41.3 billion provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance and related services, primarily in the United States, the latter renders a range of commercial and personal property and casualty insurance products as well as services to businesses, government units, associations and individuals in the United states and internationally. It has a market cap of $35.9 billion.

Two better-ranked stocks from the same industry are Alleghany Corp. Y and Hallmark Financial Services, Inc. HALL, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Rank

Progressive carries a Zacks Rank #3 (Hold) while Travelers has a Zacks Rank #4 (Sell). Thus, Progressive emerges a clear winner in this round.

Price Performance

Progressive has outperformed both Travelers and the industry in a year. While shares of Progressive have surged 48.4%, the Travelers stock has gained 10.4%. Progressive wins this round too.


Valuation

The price to book value metric is the best multiple used for valuing insurers. Compared with the Property and Casualty Industry’s P/B ratio of 1.1.53, both Progressive and Travelers are overvalued with a respective reading of 3.92 and 1.59. With a lower price to book value multiple, Travelers shares are underpriced.


 

Debt-to-Equity

Both Progressive and Travelers have higher debt-to-equity ratio compared with the industry average of 26.9. However, Travelers with a reading of 28.6 betters Progressive’s leverage ratio of 35.1. Therefore, Travelers has a visible edge over Progressive on this front.


 

Return on Equity

Progressive with a return on equity of 21.8% exceeded the industry average of 5.9% as well as Travelers’ tally of 8.9%. Return on equity is a profitability measure, identifying the company’s efficiency in utilizing its shareholders’ funds.  Hence, Progressive leads this round.


 

Dividend Yield

Travelers dividend yields 2.3%, outperforming the industry average of 0.4% and Progressive’s yield of 1.6%. Travelers wins this round hands down.


 

Combined Ratio

Combined ratio, a measure for underwriting profitability, calculates percentage of premiums paid out as claims and expenses. The metric for Progressive is 90.9, above the Travelers’ reading of 98.1. Progressive overtakes Travelers in this round.

Earnings Surprise History

Considering both companies’ surprise history, Progressive’s earnings surpassed the Zacks Consensus Estimate in the last four quarters with an average beat of 9.19%. While Travelers outpaced expectations in two of the trailing four quarters with an average four-quarter positive surprise of 38.94%.

Progressive with more number of earnings beats grabs this round.

Earnings Estimate Revisions and Growth Projections

Progressive’s 2018 earnings estimates have moved 3.9% north and 2.7% for 2019 over the past 60 days. The bottom line is estimated to soar 72.6% and 0.8% year over year for 2018 and 2019, respectively.

For Travelers, the consensus mark for current-year earnings per share moved 0.8% south for 2018 and 0.2% for 2019. The bottom line is estimated to rally 36.4% and 14.4% year over year for 2018 and 2019, respectively.

The expected long-term earnings growth rate for Travelers is 12.7%, outperforming Progressive’s 7.3% reading and the industry’s 11.8% average.

Here, both Travelers and Progressive fair equally.

To Conclude

While Progressive scored better in metrics like Zacks Rank, price performance, return on equity, combined ratio and earnings surprise history, Travelers fared better in terms of valuation, dividend yield and leverage. Progressive is thus a more exciting viable investment option than Travelers at present.

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Hallmark Financial Services, Inc. (HALL) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
Alleghany Corporation (Y) : Free Stock Analysis Report
 
The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
 
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