Raymond James: Progressive Could Be Set For Sustained Underwriting Growth

The insurance industry appears poised for profits in 2018 and 2019, suggesting that Progressive Corp PGR could continue to record a gradual improvement in underlying underwriting results through 2019, according to Raymond James.

The Analyst

Analyst Gregory Peters maintains a Strong Buy rating on Progressive with an unchanged $85 price target. 

The Thesis

CPI data released last week indicated 4.61-percent year-on-year growth in auto rates in December, representing the second consecutive month where rate increases were below 6 percent, Peters said in a Monday note. 

The continued deceleration in auto insurance rate increases from the peak achieved in February 2018 indicates that the auto insurance industry has begun a recovery phase, the analyst said. 

The deceleration in premium rate increases appears to be an inflection point toward industry profitability, he said. 

The operating EPS estimate for 2018 has been raised from $4.74 to $4.80 to reflect the October and November results.

Peters said he expects Progressive to report agency NPW — new premium written — growth of 13.7 percent year-on-year and direct NPW growth of 17.4 percent year-on-year in Q4. 

The combined ratio is expected to increase to 93.5 percent year-on-year in Q4 from 91.4 percent in Q4 of 2017, Peters said. The underlying combined ratio could improve to 90.9 percent in Q4 from 91.7 percent a year ago, he said. 

Net Investment Income is likely to grow 56.5 percent year-on-year to $238 million in Q4, while personal lines auto policies in force are expected to increase 14.1 percent year-on-year to 13.4 million, according to Raymond James. 

Price Action

Progressive shares were up 0.76 percent at $62.05 at the time of publication Tuesday. 

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