Progressive (NYSE:PGR) reports earnings Tuesday before the bell. The Mayfield Village, Ohio-based insurer comes off an unusual earnings miss in January and a bizarre lack of activity in recent weeks. After about two and a half years of mostly steady increases, PGR stock has become unusually stagnant. This low level of volatility makes the need for any news that can move PGR critical for attracting investors.
For Q1, Wall Street estimates PGR will earn $1.37 per share on a consensus basis. If this estimate holds, it means profits will rise by 6.2% year-over-year. Progressive earned $1.29 per share in the first quarter of 2018. Analysts also predict $9.19 billion in revenue for the quarter. This would come in 15.3% higher than year-ago levels when the company brought in $7.97 billion.
Investors have good reason to pay close attention to this report. PGR stock tends to beat earnings in most cases. However, whether the company beat estimates in January depends on how one defines earnings.
If counting net realized losses on securities of $572.2 million, profits came in at only 44 cents per share, well off estimates of $1.01 per share. The company earned $1.24 per share when not counting the unusually high losses on securities. Investors will likely watch earnings to see if this massive net realized loss amounts to a one-time occurrence or if it happens again.
PGR Stock Defined By Its Lack of Activity
Even more importantly, traders will look for something, perhaps anything, that will inspire movement in PGR stock. Since Feb. 20, Progressive stock has barely registered a pulse. Since that day, it has traded in a tight range between $71.39 per share and $73.78 per share.
Progressive also hit a near-term peak of $73.69 per share in early November. However, even when considering a likely double top, such stagnation seems unusual. PGR stock rose more than 27% from its December lows until price movements nearly came to a halt.
However, other insurance stocks have stood still at this time. Allstate (NYSE:ALL) and American Financial Group (NYSE:AFG) stock have shown a similar trading pattern. Although Travelers (NYSE:TRV) has moved higher since February, it too began to stand still in April.
Traders May Look to Forward Guidance
Looking for any news that will move the stock, traders may also focus on the forward guidance. In this area, Wall Street has seen some reason for mildly bullish sentiment. Earnings estimates for this quarter have risen by 8 cents over the last three months. Profit predictions for the next quarter and the year have also increased.
Still, it will probably need news of some kind to see significant movement. The current fundamentals offer little that can move PGR. Earnings estimates place the forward price-to-earnings (P/E) ratio at around 13.7. That valuation appears reasonable. However, the estimated profit growth of 0.4% this year and 6.2% in 2020 gives investors little reason to buy PGR. Moreover, a dividend yield of 0.55% will likely not inspire new investors.
Should You Buy Into Earnings?
PGR stock needs this quarterly report to inspire some movement in the stock. After a dramatic recovery from the December lows, the stock persisted with little change for nearly two months.
Surprise news from the earnings report could potentially break PGR out of its tight range. However, the P/E ratio, growth rate and dividend payout offer little reason to either buy or short PGR stock.
Also, even if the report catalyzes the equity, current valuations give little incentive to either buy or sell. For this reason, not only will Progressive stock need to move to attract investors, but it will also have to move enough to offer a value proposition.
I do not see that level of price action occurring at this time. Hence, regardless of whether one is a bull or a bear, PGR stock looks like a stock to avoid for now.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.