By Car insurance costs have been on the rise, affecting various entities including consumers, body shops, auto manufacturers, and insurance providers.
Progressive (ticker: PGR) is set to announce its earnings report on Thursday, and investors should carefully consider insights on pricing and profit margins to gauge the potential upward trajectory of insurance rates.
For the second quarter, Wall Street analysts are anticipating earnings per share of approximately 85 cents from $14.5 billion in sales. In the same period last year, Progressive reported earnings of 96 cents per share from $12.1 billion in sales.
The sales increase can primarily be attributed to the rising cost of insurance. However, the expenses associated with fixing cars have also surged, putting pressure on profitability. In the first quarter, Progressive’s combined ratio—considering expenses and underwriting claims—stood at 99%, resulting in a mere 1% profit margin. Comparatively, the combined ratio was 94.5% in the first quarter of 2022.
The company has faced several challenges, but Progressive has taken proactive steps by recalibrating its personal auto book and shifting focus towards growth rather than margins. Discussing this strategy, J.P. Morgan analyst Jimmy Bhullar noted in a recent research report, “Elevated claims and reserve charges, particularly in Florida, are exerting pressure on margins and necessitating additional price adjustments.”
While Bhullar acknowledges Progressive as a leader in the industry, he believes that the stock is currently fully valued. In terms of valuation multiples, Progressive trades at around 17 times the estimated earnings for 2024. In contrast, Allstate (ALL) trades at 8 times earnings. Bhullar has assigned a Hold rating to Progressive shares with a price target of $146 per share.
This sentiment is largely shared by Wall Street analysts, with only 36% of them providing a Buy rating for the company’s shares. In comparison, the average Buy-rating ratio for stocks in the S&P 500 is around 55%. The average analyst price target for Progressive stock is approximately $145.
As of now, Progressive shares are trading at around $132, reflecting a year-to-date increase of about 2% and a 12% rise over the past 12 months. In comparison, the S&P 500 index has gained approximately 16% year to date and 18% over the past year.
Comments