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Progressive's Premium Growth a Boon, Rising Costs a Concern

Zacks Equity Research

The Progressive Corporation PGR should continue to witness improving premiums, given its leading market presence, competitive pricing and a compelling product portfolio. Vehicle and Property businesses, contributing to strength in both Personal and Commercial business lines should retain the growth momentum. These in turn, should help the company witness a consistently strong policy life expectancy, a measure of customer retention.

Given the rising interest rates, Progressive has been experiencing better investment results over the last several quarters and we expect this growth trend to sustain not only on the back of a favorable interest rate environment but also a combination of improved average assets and portfolio yields.

Riding on the strength of steady premium growth and higher investment income, the company’s top line has been witnessing a substantial rise over the past several years (with the metric ascending 8.1% over the last five years). In fact, the Zacks Consensus Estimate for current-year revenues is pegged at $32 billion, reflecting a 19.6% jump on a year-over-year basis while for 2019, the consensus mark stands at $36.9 billion, representing a 15.1% climb.

With respect to enhancement of shareholder value, the company has been indulging in a few good shareholder-friendly moves like share buybacks and annual as well as special dividend payouts. In the last five years, the company’s annual dividend payment registered a five-year CAGR (2013-2018) of about 41%. Such measures underscore the company’s strong liquidity position and in turn, not only retain the existing investors’ faith in the stock but also attract new ones.

Shares of this Zacks Rank #3 (Hold) P&C insurer have gained 8.5% year to date against the industry’s decline of 4.2%. We expect the aforementioned positives to drive the stock higher in the near term.

However, being a P&C insurer, the Zacks Rank #3 (Hold) auto insurer in the United States is susceptible to catastrophe losses, which can render volatility to its underwriting profitability. Also, escalating expenses, mainly due to higher losses and settlement expenses plus policy acquisition costs, have been restricting the insurer’s operating margin expansion.

Nonetheless, the P&C insurer’s Zacks Consensus Estimate for current-year earnings is pegged at $4.76, indicating a year-over-year surge of 80.9% and for 2019, the consensus mark for the same stands at $4.83, depicting a 1.6% year-over-year rise.

Additionally, the stock carries a favorable VGM Score of A. Here V stands for Value, G for Growth and M for Momentum with the score being a weighted combination of all three factors. Back-tested results have shown that stocks with a VGM Score of A or B when combined with a top Zacks Rank #1 (Strong Buy) or 2 (Buy) offer best investment opportunities.

Furthermore, the company witnessed its 2019 estimates move 2.3% north while the expected long-term earnings growth rate is pegged at 7.3%.

Stocks to Consider

Investors interested in some better-ranked stocks from the same space can consider Cincinnati Financial Corporation CINF, Atlas Financial Holdings, Inc. AFH and W.R. Berkley Corporation WRB, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cincinnati Financial provides property casualty insurance products in the United States. The company delivered positive surprises in three of the trailing four reported quarters with average beat of 14.49%.

Atlas Financial engages in underwriting commercial automobile insurance policies in the United States. The company pulled off earnings surprises in three of the previous four reported quarters, the average beat being 17.56%.

W.R. Berkley operates as a commercial lines writer in the United States and internationally. The company surpassed estimates in all the preceding four reported quarters, the average being 17.73%.

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W.R. Berkley Corporation (WRB) : Free Stock Analysis Report
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