3 Reasons to Be Bullish on Progressive Corp Stock

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Progressive stock - 3 Reasons to Be Bullish on Progressive Corp Stock

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The past 12 months have definitely been standout for Progressive Corp (NYSE:PGR). Note that the shares have logged an impressive gain of 55%. To put this in perspective, the average return for the property and casualty industry was about 15% during the same period of time. In fact, PGR stock has been able to beat out companies like Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOGL).

Why the strong performance? Well, there are a variety of factors that have propelled Progressive stock. For example, last year there was a 16% jump in net premiums written to $3.8 billion (compared to $2.8 billion in 2016). The company also benefited from the strong bull move in the equities markets, which padded the portfolio.

But perhaps the most important factor is the company’s increased pricing, which has helped bolster margins.

OK then, can Progressive stock continue the momentum? Or should investors look at taking profits?

Granted, the valuation is far from cheap and the dividend is only 1.1%. Yet I still think there is potential for capital gains, as Progressive has a fairly solid platform.

Let’s take a look:

Progressive Stock Advantage No 1: Scale

A critical element of success in the insurance business is scale. After all, policies are essentially commodities. So with a larger base, a company can get economies of scale.

This has certainly been a big help with Progressive, which is the No. 4 auto insurer in the U.S., accounting for roughly 9% of the overall market. In terms of coverage, the company has over 33,000 employees in about 400 offices. There are also more than 35,000 independent insurance agencies that sell PGR policies.

With its scale, the company has been aggressive with its expenditures on advertising. Close to 10 cents out of every dollar spent in the auto insurance industry has come from Progressive. Hey, is it any wonder that Flo has become a household name?

But Progressive has been more than just commercials. Consider that the company has been focused on digital platforms like YouTube, Facebook, Inc. (NASDAQ:FB), Amazon.com, Inc. (NASDAQ:AMZN) and Roku Inc (NASDAQ:ROKU).

The advertising expenditures have proven to be efficient as well. According to InvestorPlace.com’s Lawrence Meyers: “Ideally, PGR stock increases because it earns far more over the life of the policy from premiums than it did to acquire the customer in the first place. In the past four years, the collections have been increasingly more than the cost per sale. In other words, acquisition expenses as a percent of lifetime earned premiums have been trending down since 2011.”

Progressive Stock Advantage No. 2: Innovation

Progressive has been focused on investing in technology. Part of this has been to help manage customer relations, such as with online resources and apps. For example, there is in the Flobot, which is the chatbot for Facebook’s Messenger.

But of course, PGR has been focused on enhancing its underwriting system, which is essential for the company’s earnings. A prime example of this is the Snapshot mobile app, which was launched in 2016. It allows users to track mileage and driving patterns. As a result, Progressive can provide discounts for safer driving as well as collect valuable data, which allows for better risk management. In all, the app has collected data on more than 33 million trips.

Progressive Stock Advantage No. 3: Expanding Footprint

It’s true that a large portion of Progressive’s business comes from the auto market. However, over the years, the company has been expanding its footprint. For example, Progressive is the No. 1 operator in commercial autos and trucks, as well as for motorcycles and specialty RVs.

But homeowners’ insurance is the most impactful (this business came with the acquisition of ARX in 2015). With this line of business, PGR has been able to put together compelling bundle plans, which have boosted premiums.

The bottom line is that the company has a quite a bit of runway for growth. According to Progressive’s own estimates, the combined auto and home market is nearly $300 billion.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2018/03/3-reasons-bullish-on-progressive-corp-pgr-stock/.

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