Shares of insurance giant Progressive (NYSE:PGR) have fallen considerably over the last week, moving away from their 52-week high of $292. The stock’s quick price drop came despite strong ongoing performance at Progressive. Why did Progressive stock go down, and is now a good time to buy the stock while its prices are still lower?
Why Did Progressive Stock Go Down?
Progressive was downgraded by Bank of America with one bank analyst making two successive price cuts taking his forecast from $333 to $300 per share. The substantial target cut and the fact that the same analyst reduced his forecast twice in quick succession appear to have spooked investors, causing PGR’s shares to move lower.
The threats of higher tariffs and slowing consumer spending have both put pressure on the market, and Progressive hasn’t been immune. As such, PGR may have fallen more in response to the sudden analyst forecast adjustment than it would have in a more bullish market.
With all of this said, it’s worth noting that PGR’s recent drop represents a fairly small decline after a much more pronounced upward trend over the last year. In the last 12 months, Progressive has climbed by 32.7%, including a 13.7% gain in the last 90 days alone. As such, Progressive is a long way from giving up the gains it has produced for its shareholders.
Net Premiums Pop 17%
Despite some downward price action, Progressive’s business is faring well. Over the last 12 months, Progressive’s net premiums written have increased 17% to $6.68 billion.
Monthly net income per share, meanwhile, advanced from $1.24 to $1.58. This 28% gain in earnings per share over the last year goes a long way toward explaining the strong returns PGR has delivered for its shareholders during that time.
The number of policies in force has grown substantially over the last year, reflecting growth in Progressive’s customer base. Across all insurance products, the company’s total policy count rose 18% to 35.6 million as of February. Progressive has also proven quite profitable over the last 12 months, with a net margin of 11.3% and a return on invested capital of 27.8%.
In auto insurance, for instance, Progressive has the second-largest market share in the US, with only State Farm edging it out. With this edge and a policy base that is still expanding at a respectable rate, it seems that Progressive has a decently strong moat around its business.
Where Does Progressive Go From Here?
In the coming 3-5 years, analysts expect PGR’s earnings per share to keep increasing at almost 15% on an annualized basis. If the company can keep up with these expectations, investors will likely see persistently strong share price returns.
Current trends in the insurance industry support Progressive’s ongoing success. With a large part of its policy portfolio in auto insurance, Progressive and other insurers are very much propped up by state-level mandates requiring auto policies to drive legally.
Right now, rates across the auto insurance industry are moving steadily higher, meaning that consumers are in the position of having to pay more for policies they can’t do without.
Given that Progressive is perceived as a cheap-ish insurance option, more affordable policies will go a long way to supporting bullish shareholders.
Management is also tapping into new technological innovations with its Snapshot program, which gives drivers rates based on their driving habits by tracking them through a smartphone app. Such efforts to provide affordable, personalized rates will likely help Progressive keep ahead of emerging online insurance companies.
Has Progressive Become Undervalued?
Although Progressive is still sitting on substantial gains, the stock actually looks fairly appealing from a value perspective at the moment. Shares are currently priced at 19.0x earnings, 2.1 times sales and 10.8 times operating cash flow. It is, however, worth noting that the current P/E ratio is somewhat on the high side by Progressive’s long-term historical standards.
Analyst forecasts for Progressive also suggest that the stock is more or less fairly valued at the moment. The average price analysts forecast for PGR is $290.35, representing a gain of only 6.4% from the most recent closing price. So, while Progressive may not actually be undervalued right now, the stock appears to be trading at a fair value that still leaves it room for further gains as its earnings grow.
Taking PGR’s Dividend Into Account
Although Progressive does pay a dividend, it’s actually one of the less attractive aspects of the stock.
PGR’s quarterly dividend payout has been stuck at $0.10 per share for some time, and the stock’s yield is very low at the moment.
So, while PGR has many positive qualities that may very well make it a very solid investment, it’s likely not the best option for producing dividend income.
Is Now the Time to Buy Progressive?
Although the recent selloff wasn’t large enough to actively make PGR shares undervalued, it could present a decent buying opportunity for investors seeking fairly safe long-term stocks. As one of America’s largest insurers, Progressive seems primed to remain profitable and growing for the foreseeable future.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
