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Progressive Downgraded At Deutsche Bank Based Solely On Valuation

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In a report published Monday, Deutsche Bank analyst Joshua Shanker downgraded the rating on Progressive Corp (NYSE: PGR) to Sell, while raising the price target to $27, solely based on valuation. The stock is trading at a premium, despite uncertainty regarding the company's long-term business prospects.

"While Progressive's earnings are far less risky and far more consistent than most P&C insurers and deserve a premium to those companies, we believe long-term prospects for growth in the broad economy are far more certain than Progressive's," Shanker explained.

The analyst believes that while the technology for autonomous vehicles is becoming more readily available, the biggest hurdles to such technology are cultural and legal. "We expect that an increase in self-driving cars will lead to fewer overall accidents, greater utilization rates, fewer vehicles and less risk differentiation," Shanker stated.

Although fewer accidents would drive earnings for auto insurance providers in the short term, it could prove detrimental to the premium that such companies could charge in the longer term.

According to the Deutsche Bank report, "Generally, we believe higher interest rates are bad for P&C insurers due to inflation-sensitive liability portfolios and approx. 4-year duration investment portfolios currently earning well above available yields."

However, the analyst expects the company's revenues to be positively correlated to inflation at present, with Progressive's 1.9-year investment portfolio expected to witness higher investment income with rising interest rates.

Latest Ratings for PGR

DateFirmActionFromTo
Nov 2020Morgan StanleyMaintainsEqual-Weight
Nov 2020BarclaysInitiates Coverage OnUnderweight
Oct 2020Raymond JamesMaintainsStrong Buy

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Posted-In: Deutsche Bank Joshua ShankerAnalyst Color Downgrades Price Target Analyst Ratings

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