We have retained our Neutral recommendation on
) following impressive second quarter results. However we believe
that high costs and a soft macroeconomic environment are likely
to weigh on the company's growth. This leading auto insurer
currently carries a Zacks Rank #3 (Hold).
Why the Reiteration?
Progressive's second-quarter earnings came in at 54 cents per
share, surging almost 176% year over year. Results also surpassed
the Zacks Consensus Estimate of 40 cents per share by 35%. Over
the last 30 days, six out of fourteen estimates moved up while
two were nudged down to increase the Zacks Consensus Estimate for
2013 by 1.3% to $1.58. It also translates to a year-over-year
improvement of 37.6%.
Progressive has a strong position in the auto insurance market
owing to its competitive rates and multi-product offering. It is
also a leader in underwriting technology and the application of
quantitative analytics in pricing and risk selection. The company
has been generating enough growth in all its segments owing to
higher premiums. The second quarter was also no exception to
this. Moreover the company's focus on customer retention is
expected to fetch more revenues and enhance growth in the
upcoming period. Although rate increases undertaken by the
company in 2012 had reduced policy life expectancy (a measure for
customer retention) as policies begin to renew, the numbers are
expected to improve.
Additionally, Progressive's continuous efforts to return capital
to shareholders through share repurchase and dividend payout is
another positive factor. During the second quarter, Progressive
bought back 3 million shares and is left with 36.8 million under
its 75 million buyback program authorized in Jun 2011. This also
establishes the inherent strength of Progressive's balance sheet.
However, the company's increased exposure to catastrophe losses
keeps growth volatile owing to the uncertainty of the events.
Additionally, Progressive's Commercial Auto operations mainly
cater to small businesses. Depressed levels of employment,
construction spending and new business creation, combined with
constraints on commercial credit in recent times have led to a
reduction in insurable risks for these small businesses. This
makes us skeptical regarding the prospect of the segment in the
Other Stocks to Consider
Among other insurers,
Global Indemnity Plc
EMC Insurance Group Inc.
Everest Re Group Limited
) carry a favorable Zacks Rank #1 (Strong Buy) and are worth
EMC INSURANCE (EMCI): Free Stock Analysis
GLOBAL INDEMNTY (GBLI): Free Stock Analysis
PROGRESSIVE COR (PGR): Free Stock Analysis
EVEREST RE LTD (RE): Free Stock Analysis
To read this article on Zacks.com click here.