Progressive Corp PGR's recently completed $875 million acquisition of a majority stake in homeowners' insurance provider ARX Holding Corp. will boost earnings and send its stock price higher, an analyst said Thursday.
UBS's Brian Meredith upgraded Progressive to Buy with a $31 target, from Neutral, and expects consensus earnings estimates for progressive will rise over the next 12 to 18 months.
Progressive changed hands recently at $26.71, up $0.16.
Progressive is known mostly as the nation's fourth-largest auto insurer. Its newly acquired 67 percent stake in ARX will foster new business and improve Progressive's customer retention through bundled offerings, Weiss said.
Progressive, which closed the deal April 1, will acquire the remaining stake in ARX over the next six years, according to its December announcement of the deal.
Short-term risks for Progressive investors include higher auto claims stemming from more miles driven by customers using relatively cheap gasoline.
"It could result in margin pressure," Weiss said.
Analysts on average maintain a Hold rating on Progressive and a $27 target, according to FactSet.
Eleven out of 20 analysts have raised their 2015 earnings estimates for Progressive during the past month, according to Thomson Financial Network.
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