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As you might know, The Progressive Corporation (NYSE:PGR) just kicked off its latest second-quarter results with some very strong numbers. It was overall a positive result, with revenues beating expectations by 4.3% to hit US$10b. Progressive reported statutory earnings per share (EPS) US$3.04, which was a notable 11% above what the analysts had forecast. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
Following last week's earnings report, Progressive's ten analysts are forecasting 2020 revenues to be US$40.6b, approximately in line with the last 12 months. Statutory per-share earnings are expected to be US$7.42, roughly flat on the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$40.0b and earnings per share (EPS) of US$6.48 in 2020. Although the revenue estimates have not really changed, we can see there's been a nice increase in earnings per share expectations, suggesting that the analysts have become more bullish after the latest result.
There's been no major changes to the consensus price target of US$88.89, suggesting that the improved earnings per share outlook is not enough to have a long-term positive impact on the stock's valuation. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Progressive analyst has a price target of US$109 per share, while the most pessimistic values it at US$64.00. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Progressive's past performance and to peers in the same industry. It's pretty clear that there is an expectation that Progressive's revenue growth will slow down substantially, with revenues next year expected to grow 0.1%, compared to a historical growth rate of 15% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 3.8% next year. Factoring in the forecast slowdown in growth, it seems obvious that Progressive is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Progressive following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Progressive's revenues are expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
With that in mind, we wouldn't be too quick to come to a conclusion on Progressive. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Progressive analysts - going out to 2022, and you can see them free on our platform here.
You should always think about risks though. Case in point, we've spotted 3 warning signs for Progressive you should be aware of, and 1 of them doesn't sit too well with us.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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