On Thursday, BMO Capital Markets increased its price target on Progressive Corp. (NYSE: NYSE:PGR) shares to $239 from $235, while maintaining an Outperform rating. The firm anticipates Progressive to outperform consensus estimates with its Personal Auto organic policy count growing by 3% and 4% by the end of 2025 and 2026, respectively. The new target is based on a nearly 19x multiple on BMO's "normalized" 2025 earnings per share (EPS) estimate of $12.60.
BMO highlighted Progressive's strong performance, noting the company's fourth consecutive quarter of significant combined ratio outperformance. The expectation is that Progressive could continue "over-earning" in the second half of 2024, with BMO raising its EPS estimate for the period by 2%.
Despite a pullback in the second quarter of 2024 due to elevated catastrophe losses, the magnitude of Progressive's earnings beats has increased through the second half of 2023 and into the first quarter of 2024.
The firm has adjusted its catastrophe loss ratio estimates to approximately 2.9% for 2025–2026, up from the previous estimate and consensus of around 2.7%. This adjustment is anticipated to impact annual EPS by approximately 2%.
BMO's target price also factors in a projected special dividend increase, with an estimate of $2.50 per share for 2024, up from last year's $0.75 per share. This would be in line with Progressive's historical pattern of declaring its annual discretionary dividend in December.
Progressive's target price represents about 5.7 times its adjusted book value excluding accumulated other comprehensive income (AOCI), which is a 63% premium over the insurer's nine-year historical average of 3.5 times.
This valuation takes into account an expected capital boost from the company's performance, with a running combined ratio estimated at around 91% for the year, compared to Progressive's long-term average of approximately 92.5%.
In other recent news, Progressive Corp has been the subject of various analyst ratings. Morgan Stanley (NYSE:MS) maintained its overweight rating on Progressive shares, reaffirming a steady price target of $255.00 and highlighting the company's potential to achieve an earnings per share (EPS) over $13 by 2025. BMO Capital Markets reiterated an Outperform rating, maintaining a price target of $235.00, while Citi raised its price target to $232.00, keeping a Neutral rating.
Progressive Corp's recent financial results have shown robust policy count growth and a significant increase in net income, with net premiums written reaching $6.18 billion. Despite missing earnings per share estimates due to elevated catastrophe losses, the company's overall performance was solid.
These recent developments indicate that Progressive Corp continues to gain market share while many competitors focus on enhancing profitability. The company's performance has been influenced by various factors, including seasonal trends and the impact of catastrophe losses. Despite these challenges, Progressive Corp maintains a strong position in the insurance industry.
InvestingPro Insights
As BMO Capital Markets raises its price target on Progressive Corp. (NYSE: PGR), recent data from InvestingPro supports the optimistic outlook for the company. Progressive's market capitalization stands robust at $129.64 billion, and the company's price-to-earnings (P/E) ratio is at 21.49, with a more favorable adjusted P/E ratio for the last twelve months as of Q2 2024 at 18.89. This indicates a potentially attractive valuation for investors considering the earnings growth potential.
InvestingPro Tips reveal that analysts have revised their earnings upwards for the upcoming period, reflecting confidence in Progressive's financial outlook. Furthermore, Progressive has demonstrated the ability to maintain dividend payments for 15 consecutive years, which aligns with BMO's projection of an increased special dividend. The company's strong return on assets at 7.63% over the last twelve months as of Q2 2024 also underlines its financial health.
For those looking to delve deeper into Progressive's financials and strategic positioning, there are additional tips available on InvestingPro. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing access to a wealth of financial data and analysis to inform investment decisions. There are 13 additional InvestingPro Tips available for Progressive at https://www.investing.com/pro/PGR, offering nuanced insights into the company's market performance and future prospects.
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