On Monday, CFRA raised its rating on Progressive Corp. (NYSE:PGR) stock from Hold to Buy and increased the price target to $235 from $215. The upgrade comes after the company reported a first-quarter operating earnings per share (EPS) of $3.76, which significantly exceeded both CFRA's estimate of $2.40 and the consensus estimate of $3.22. This performance was attributed to a 19% increase in premiums and a 7% rise in policies in force, which were in line with forecasts for 15%-20% premium growth, as well as a 47% increase in investment income.
The improved profitability for the quarter was highlighted by a combined loss-expense ratio of 86.1%, a notable improvement from the previous year's 99.0%. CFRA noted that while the first-quarter underwriting results may not indicate a long-term trend, they do reflect easing claim cost inflation and are expected to act as a catalyst for the stock.
The new price target is based on a valuation of 19.0 times CFRA's 2025 operating EPS estimate of $12.40, which has been raised by $2.10, and 21.3 times the upwardly revised 2024 operating EPS of $11.05. These multiples compare to Progressive's three-year average forward multiple of 21 times and a peer average of 12.7 times.
CFRA pointed out that Progressive's stock is currently trading at 18.7 times the firm's 2024 EPS estimate. Given the company's above-peer top-line growth, underwriting profitability, and leading underwriting technology, CFRA considers the shares to be undervalued relative to historical averages. The firm cautions that the first-quarter underwriting results may not be indicative of a long-term trend, yet they show signs of easing claim cost inflation which could provide a positive impetus for the stock.
InvestingPro Insights
Progressive Corp (NYSE:PGR) has demonstrated a strong financial performance, with analysts revising earnings upwards for the upcoming period, signaling confidence in the company's future profitability. This aligns with CFRA's optimistic outlook and recent upgrade of Progressive's stock. The company's market capitalization stands at a robust $120.91 billion, reflecting its prominent position in the insurance industry. Despite trading at a high earnings multiple of 21.02, which exceeds the industry average, Progressive's significant revenue growth of 25.2% over the last twelve months as of Q1 2023, and a substantial three-month price total return of 25.25%, underscore its growth potential and market confidence.
InvestingPro Tips highlight that while Progressive is trading near its 52-week high, with a price percentage of 99.13% of that high, it has also maintained dividend payments for 15 consecutive years, demonstrating a commitment to shareholder returns. Additionally, the company has a strong track record of returns, with a high return over the last year and a notable increase in price over the last six months. For investors looking to delve deeper into Progressive's financials and future prospects, there are 14 additional InvestingPro Tips available on their platform. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to comprehensive analysis and expert insights.
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