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Category: Stock Market and Progressive Corporation (PGR)
Date: 18 June 2020 Stock Price: $79.21 We take a look at the 1st quarter 2020 earnings report of Progressive Corporation (PGR), an American insurance company with their revenues topping $9.3 billion in the first quarter of their 2020 fiscal year.
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- The Progressive Corporation’s insurance subsidiaries generated $9.9 billion of net premiums written during the first quarter 2020, which is a 7% increase over the first quarter 2019"
About Progressive Corporation
The Progressive Corporation is an American insurance company, one of the largest providers of car insurance in America. The company insures motorcycles, boats, RVs, and commercial vehicles and provides home insurance through select companies.
Progressive has a significant art collection installed across their various offices. We will show a few of these pieces in this article. Below a bit more about it. Installed in Progressive locations across the country, the Progressive Art Collection reinforces our workplace culture by provoking our people to dialogue and debate, encouraging alternative perspectives, and inspiring innovation and careful thought
Progressive has a significant art collection installed across their various offices. We will show a few of these pieces in this article. Below a bit more about it. Installed in Progressive locations across the country, the Progressive Art Collection reinforces our workplace culture by provoking our people to dialogue and debate, encouraging alternative perspectives, and inspiring innovation and careful thought
Overview of Progressive Corporations Q1 2020 earnings report
The data below refers to the latest quarter unless specified otherwise:
- Revenue: $9.323 billion (up from $9.3 billion for the same quarter of the previous year)
- Revenue increased by 0.24% over the last 12 months
- Total expenses: $8.448 billion (up from $7.732 billion for the same quarter of the previous year)
- Total expenses increased by 9.3% over the last 12 months
- Some margin squeeze for Progressive Corporation as their revenues increased at a far slower pace than their expenses
- Net income: $686 million (down from $1.071 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.17 (dow from $1.83 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 586.9 million (up from 586.6 million for the same quarter of the previous year)
- Cash and cash equivalents: $369.5 million
- Cash and cash equivalents per share: $0.62
- Cash and cash equivalents makes up 0.8% of Progressive Corporation's total market capital
- Cash and cash equivalents makes up 0.65% of Progressive Corporation's total assets
- Premiums receivable: $7.568 billion
- Premiums receivable makes up 13.5% of Progressive Corporation's total assets
- Stockholders equity of Progressive Corporation' : $14.351 billion
- Stockholders equity per share: $24.45
- So Progressive Corporation is trading at 3.23 times its stockholders equity per share. This is within the expected range of between 2 and 4 most firms tend to trade at
- Long term debt of Progressive Corporation : $5.394 billion
- Long term debt makes up 12.9% of Progressive Corporation's total liabilities
Management commentary on their Q1 2020 earnings report
The Progressive Corporation’s insurance subsidiaries generated $9.9 billion of net premiums written during the first quarter 2020, which is a 7% increase over the first quarter 2019, and recognized an underwriting profit margin of 13.1%. Policies in force grew 9% year over year to end the quarter with 22.9 million. Despite the 30% increase in underwriting income, on a consolidated basis, Progressive’s net income and comprehensive income were down 36% and 45%, respectively, from the first quarter last year due to significant holding period losses on equity securities and a decrease in the change in unrealized gains on fixed-maturity securities in the first quarter 2020 compared to the same period last year. We ended the quarter with $19.7 billion of total capital (debt plus shareholders’ equity), an increase of $1.7 billion from year end 2019. The changes during the quarter included the issuance of $1.0 billion of senior notes, split evenly between 10-year and 30-year maturities, and comprehensive income earned during the period.
Our results for the first quarter were significantly impacted by the spread of the novel coronavirus, COVID-19, and federal, state, and local social distancing and shelter-in-place restrictions (“COVID-19 restrictions”) that were enacted. During the last three weeks of March, which we refer to as the post-COVID-19 period, we saw the most significant impacts on our operations, including growth and profitability. In the post-COVID-19 period, we saw substantial declines in shopping activity and significant decreases in new applications in our Personal Lines businesses (with new personal auto applications down 23% compared to the same period in the prior year) and Commercial Lines businesses (new applications down 29%), although renewal application growth rates remained generally consistent with the pre-COVID period.
In addition to the decrease in new applications, in March we reduced the net premiums written on our transportation network company business by $110.5 million to reflect the impact from COVID-19 restrictions on the estimated number of miles driven during the policy terms, as discussed below. As a result, on a year-over-year basis, companywide net premium written, which grew 14% and 10% in January and February, respectively, decreased 3% in March. Underwriting margins varied by month, with January reporting 7.9%, February 9.7%, and March 22.9%. Vehicle accidents declined significantly as COVID related restrictions were imposed. Our personal auto incurred accident frequency was down about 47% for March, as compared to the prior year. In light of the reduced frequency and COVID-19 restrictions, we increased our loss adjustment expense reserves $103.0 million in March, based on revised estimates of our per claim settlement costs. Our expense ratio was also adversely impacted, including a $71.0 million increase in the allowance for doubtful accounts relating to our billing leniency efforts, such as suspending cancellations and non-renewals for non-payment and pausing collection activities that we put in place to help policyholders who may be experiencing financial hardships.
Our non-U.S. Treasury fixed-income and equity investment portfolios suffered significant declines during March, after COVID-19 restrictions were put in place, although valuations recovered to an extent by month end. In April, we saw a partial market recovery in both the fixed-income and equity markets and continue to remain cautious in this uncertain environment. To fortify our balance sheet, we added the $1.0 billion in capital referenced above and temporarily suspended any open market repurchases of our common shares as we evaluate our overall capital needs. In April, Agency auto growth in quotes and new applications were consistent with the decreases that we recorded in March, post-COVID-19 restrictions. We believe that agents having to work from home could be contributing to the continuation of these decreases. In the Direct auto business, we have seen positive signs of shopping patterns, especially during the latter part of April, based on quoting activity; however, new applications are still less than the same period last year. With COVID-19 restrictions still in place for the majority of the country in April, we continued to see our incurred auto frequency down significantly from last year. As previously announced, we will pay back a total of about $1.0 billion to our personal auto customers, via credits or payments of 20% of their monthly premiums. These credits or payments, which will reduce our underwriting profitability, will be made separately in May and June for customers with a policy in force on April 30 and May 31, 2020, respectively.
From an operations perspective, we instituted work-from-home measures in mid-March, and by early April, over 95% of our employees were working from home. In this challenging environment, we believe we are effectively maintaining our insurance and investment operations, our financial reporting systems, and our internal controls over financial reporting. For those employees whose jobs require them to remain in the office, we have implemented social distancing, enhanced cleaning, and other protocols to promote employee health and safety. To help employees, we paid a portion of their annual bonus in April, excluding senior leaders, and are providing flexibility in their paid time off. We continue to make investments in our infrastructure and are currently maintaining our staffing levels, as we prepare for a return to more normal insurance markets and economic conditions
In addition to the decrease in new applications, in March we reduced the net premiums written on our transportation network company business by $110.5 million to reflect the impact from COVID-19 restrictions on the estimated number of miles driven during the policy terms, as discussed below. As a result, on a year-over-year basis, companywide net premium written, which grew 14% and 10% in January and February, respectively, decreased 3% in March. Underwriting margins varied by month, with January reporting 7.9%, February 9.7%, and March 22.9%. Vehicle accidents declined significantly as COVID related restrictions were imposed. Our personal auto incurred accident frequency was down about 47% for March, as compared to the prior year. In light of the reduced frequency and COVID-19 restrictions, we increased our loss adjustment expense reserves $103.0 million in March, based on revised estimates of our per claim settlement costs. Our expense ratio was also adversely impacted, including a $71.0 million increase in the allowance for doubtful accounts relating to our billing leniency efforts, such as suspending cancellations and non-renewals for non-payment and pausing collection activities that we put in place to help policyholders who may be experiencing financial hardships.
Our non-U.S. Treasury fixed-income and equity investment portfolios suffered significant declines during March, after COVID-19 restrictions were put in place, although valuations recovered to an extent by month end. In April, we saw a partial market recovery in both the fixed-income and equity markets and continue to remain cautious in this uncertain environment. To fortify our balance sheet, we added the $1.0 billion in capital referenced above and temporarily suspended any open market repurchases of our common shares as we evaluate our overall capital needs. In April, Agency auto growth in quotes and new applications were consistent with the decreases that we recorded in March, post-COVID-19 restrictions. We believe that agents having to work from home could be contributing to the continuation of these decreases. In the Direct auto business, we have seen positive signs of shopping patterns, especially during the latter part of April, based on quoting activity; however, new applications are still less than the same period last year. With COVID-19 restrictions still in place for the majority of the country in April, we continued to see our incurred auto frequency down significantly from last year. As previously announced, we will pay back a total of about $1.0 billion to our personal auto customers, via credits or payments of 20% of their monthly premiums. These credits or payments, which will reduce our underwriting profitability, will be made separately in May and June for customers with a policy in force on April 30 and May 31, 2020, respectively.
From an operations perspective, we instituted work-from-home measures in mid-March, and by early April, over 95% of our employees were working from home. In this challenging environment, we believe we are effectively maintaining our insurance and investment operations, our financial reporting systems, and our internal controls over financial reporting. For those employees whose jobs require them to remain in the office, we have implemented social distancing, enhanced cleaning, and other protocols to promote employee health and safety. To help employees, we paid a portion of their annual bonus in April, excluding senior leaders, and are providing flexibility in their paid time off. We continue to make investments in our infrastructure and are currently maintaining our staffing levels, as we prepare for a return to more normal insurance markets and economic conditions
Progressive Corporation (NYSE: PGR) stock price history
The image below, obtained from Google shows the stock price history of Progressive Corporation for the last 5 years. And its been a pretty good time for Progressive Corporation stockholders. 5 years ago the stock was trading at $28 a stock and its current trading at $79.21 which is a whopping % returned to Progressive stockholders over the last 5 years.
The stock of Progressive Corporation (PGR) is trading at a lot closer to its 52 week high of $84.96 than it is to its 52 week low of $62.18 which to us is a clear indication that the short term momentum and sentiment of Progressive Corporation stock is very positive right now.
The stock of Progressive Corporation (PGR) is trading at a lot closer to its 52 week high of $84.96 than it is to its 52 week low of $62.18 which to us is a clear indication that the short term momentum and sentiment of Progressive Corporation stock is very positive right now.
Progressive Corporation (PGR) stock vs Allstate (ALL) stock
The image below shows the stock price performance of Progressive Corporation (PGR) and Allstate (ALL) over the last 3 years. From the image it is clear that Progressive's stock has been a far better performer than that of Allstate. Over the three year period the stock of Progressive increased by 78.76% while the stock of Allstate increased by 10.52% over the same period of time.
Recent coverage of Progressive Corporation (PGR)
The extract below covers the latest regarding Progressive Corporation as obtained from Finance.yahoo.com
Giverny Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. You should check out Giverny Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.
In the said letter, Giverny Capital highlighted a few stocks and Progressive Corp (NYSE:PGR) is one of them. Progressive is an insurance company. Year-to-date, Progressive Corp (NYSE:PGR) stock gained 3.2% and on May 22nd it had a closing price of $74.72. Here is what Giverny Capital said:
"Progressive Corp. is our number four holding, at 6.0%. Progressive competes in the crowded and commodity-like auto insurance industry but has developed over decades both superior underwriting capabilities and an ability to sell auto insurance direct to consumers, which lowers its cost structure. Today, Progressive consistently earns the highest underwriting margins in auto insurance and grows faster than any of its major rivals. We believe its heavy investment in telematics over the past two decades has widened its lead in underwriting vs. all comers. While others can duplicate the investment in telematics, the value is in analyzing the data, including thinking of new ways to use it – and here Progressive’s lead will not narrow until others have years of data in hand and the scientists to parse it.
It’s fair to wonder whether auto insurance is a long-term declining industry, based on safety advances in cars and the potential for autonomous driving. There is a welcome trend to fewer accidents on the road. But today’s cars have so many sensors and cameras in their bumpers and mirrors that each accident tends to be expensive to resolve. In auto insurance terms, accident frequency is down but severity is up. And while autonomous driving is coming, it probably is not coming soon. Americans bought roughly 17 million new cars and trucks in each of the last six years. Many of those vehicles will be on the road into the 2030s. And ride sharing may be creating more miles driven annually, not less, as some passengers call for an Uber or Lyft rather than take public transportation. We’d stipulate that eventually auto insurance will become a sunset industry, but we think Progressive can grow for many years before this happens."
In Q4 2019, the number of bullish hedge fund positions on Progressive Corp (NYSE:PGR) stock decreased by about 9% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with PGR’s growth potential. Our calculations showed that Progressive Corp (NYSE:PGR) isn't among the 30 most popular stocks among hedge funds.
Read the full article here
Giverny Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. You should check out Giverny Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.
In the said letter, Giverny Capital highlighted a few stocks and Progressive Corp (NYSE:PGR) is one of them. Progressive is an insurance company. Year-to-date, Progressive Corp (NYSE:PGR) stock gained 3.2% and on May 22nd it had a closing price of $74.72. Here is what Giverny Capital said:
"Progressive Corp. is our number four holding, at 6.0%. Progressive competes in the crowded and commodity-like auto insurance industry but has developed over decades both superior underwriting capabilities and an ability to sell auto insurance direct to consumers, which lowers its cost structure. Today, Progressive consistently earns the highest underwriting margins in auto insurance and grows faster than any of its major rivals. We believe its heavy investment in telematics over the past two decades has widened its lead in underwriting vs. all comers. While others can duplicate the investment in telematics, the value is in analyzing the data, including thinking of new ways to use it – and here Progressive’s lead will not narrow until others have years of data in hand and the scientists to parse it.
It’s fair to wonder whether auto insurance is a long-term declining industry, based on safety advances in cars and the potential for autonomous driving. There is a welcome trend to fewer accidents on the road. But today’s cars have so many sensors and cameras in their bumpers and mirrors that each accident tends to be expensive to resolve. In auto insurance terms, accident frequency is down but severity is up. And while autonomous driving is coming, it probably is not coming soon. Americans bought roughly 17 million new cars and trucks in each of the last six years. Many of those vehicles will be on the road into the 2030s. And ride sharing may be creating more miles driven annually, not less, as some passengers call for an Uber or Lyft rather than take public transportation. We’d stipulate that eventually auto insurance will become a sunset industry, but we think Progressive can grow for many years before this happens."
In Q4 2019, the number of bullish hedge fund positions on Progressive Corp (NYSE:PGR) stock decreased by about 9% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with PGR’s growth potential. Our calculations showed that Progressive Corp (NYSE:PGR) isn't among the 30 most popular stocks among hedge funds.
Read the full article here
Progressive Corporation (NYSE: PGR) latest stock valuation
So based on Progressive Corporation's 1st quarter 2020 earnings report what do we value the stock price at? Based on the group's latest earnings report our valuation model provides a target price (full value price) for Progressive Corporation at $74.90 a stock. We therefore believe Progressive Corporation stock is overvalued and we expect the stock price to pull back slightly in coming weeks and months.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price) which in this case is $74.90. A good entry point into the stock of Progressive Corporation would therefore be at $67.40 or below.
Since the stock of Progressive Corporation is trading at well above our suggested entry point and target price we rate the stock of Progressive Corporation as a sell.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price) which in this case is $74.90. A good entry point into the stock of Progressive Corporation would therefore be at $67.40 or below.
Since the stock of Progressive Corporation is trading at well above our suggested entry point and target price we rate the stock of Progressive Corporation as a sell.
Next earnings release of Progressive Corporation (PGR)
It is expected that Progressive Corporation will release their 2nd quarter 2020 earnings report in early August 2020