Progressive Corp's Premiums Continue To Rise: Time To Hold?
Zacks Investment Research | Dec 08, 2016 09:40PM ET
The Progressive Corporation (NYSE:PGR) is one of the major auto insurers in the U.S. The insurer is striving to become a one-stop insurance destination by catering to customers opting for a combination of home and auto coverage.
Progressive Corp. has maintained its industry-leading position in product, service and distribution innovation, particularly in personal auto. The company’s net premiums written have been displaying an upward trend over the last several quarters. Progressive Corp will continue to derive benefits from competitive rates, in all its markets and its diversified multi-product offerings, which in turn will help the company to experience improved premiums in future.
This apart, it also remains focused on boosting customer retention. Progressive anticipates reporting a higher Policy Life Expectancy (PLE), which is a measure for customer retention, in the near term. Moreover, the P&C insurer’s acquisition of the majority stake in ARX Holding Corp. has started to bear fruit, raising further optimism about the company’s overall results in future.
Also, the company remains committed toward enhancing shareholder value through dividends and share buybacks, which in turn lowers share count and boosts the bottom line.
However, exposure to catastrophe losses will continue to pose a risk for the company’s profitability. The P&C insurer has been witnessing increasing combined ratio.. Given the sudden occurrences of catastrophic events, the company does not expect any improvement in the near term. In addition, intense competition has adversely affected the overall results of the company.
Shares of Progressive Corp declined 6.5%, underperforming the Zacks categorized Property and Casualty industry’s increase of 21.2%, year-to-date. Also the Zacks Rank #3 (Hold) P&C insurer has witnessed downward estimate revision of its full-year 2016, over the last 60 days.
Nonetheless, the aforesaid growth drivers and solid top line growth along with a robust liquidity position backed by strong cash flow generation, are expected to help the stock turn around in the near future.
Interestingly, the company’s price earnings growth ratio – which determines the relative trade-off – between the price of a stock, earnings generated per share and the company's expected growth – is 2.16. This is better than the industry average of 1.29. Progressive Corporation carries a Zacks Investment Research
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