Progressive Corporation (PGR) provides insurance for personal and commercial automobiles and trucks, motorcycles, boats, recreational vehicles, and houses; it is the country's third-biggest auto insurer, a major supplier of motorcycle and commercial auto insurance, and one of the top 15 homeowners insurance providers.
The company's shares are up more than 13% over the past year and 24% over the past six months. The company claimed to have increased commercial car premiums by more than 200% in the last five years, all while maintaining a higher-than-average industry profit margin and finishing March with just under 1 million commercial lines policies in effect.
However, the stock is down 1.8% over the past month. In addition, last month, Piper Sandler analyst Paul Newsome downgraded the stock to "Underweight" from "Neutral."
Here's what could shape PGR's performance in the near term:
Mixed financials
PGR's net premium written increased 12.8% year-over-year to $13.2 billion for the three months ended March 31, 2022. Its net premium earned increased 13.5% from the year-ago value to $11.8 billion. However, the company's net income declined 79.1% year-over-year to $0.31 billion. Its underwriting margin came in at 5.5% compared to 10.7% in the prior-year period.
Mixed Profitability
PGR's trailing-12-months cash from operations of $7.65 billion is 5259% higher than the industry average of $142.74 million. Its trailing-12-months ROA, levered FCF margin, and ROC is 133.9%, 5.2%, and 27.8% higher than their respective industry averages. However, its trailing-12-months net income margin of 4.5% is 84.5% lower than its industry average of 29.4%. Also, its trailing-12-months gross profit margin of 6.7% is 89.5% lower than the industry average of 63.7%.
Mixed Valuation
In terms of forward non-GAAP P/E, PGR is currently trading at 23.75x, which is 138.4% higher than the 9.96x industry average. Also, its forward Price/Book of 3.77x is 244.7% higher than the 1.09x industry average.
However, PGR's forward EV/Sales of 1.41x is 49.9% lower than the industry average of 2.81x, and its trailing-12-months Price/Sales is 54.9% lower than the 2.83x industry average.
POWR Ratings Reflect Uncertainty
PGR has an overall C rating, which equates to a Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. PGR has a D for Value and a C for Quality. Its mixed valuation is in sync with the Value grade. In addition, the company's mixed profitability and financials are consistent with the Quality grade.
Of the 56 stocks in the C-rated Insurance – Property & Casualty industry, PGR is ranked #25.
Beyond what I've stated above, you can view PGR ratings for Growth, Momentum, Stability, and Sentiment here.
Bottom Line
While the company reported stable growth across its segments, its declining profitability and low-profit margins are concerning. In addition, considering the recent analysts' ratings downgrade on the stock, we believe investors should avoid investing in the stock.
How Does The Progressive Corporation (PGR) Stack Up Against its Peers?
While PGR has an overall C rating, one might want to consider its industry peers, Protective Insurance Corporation (PTVCB) and MS&AD Insurance Group Holdings Inc. (MSADY), which have an overall A (Strong Buy) rating.
PGR shares were trading at $112.13 per share on Monday morning, up $1.14 (+1.03%). Year-to-date, PGR has gained 9.44%, versus a -17.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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