Personal and commercial auto insurer Progressive Corp. (NYSE:PGR) reported second-quarter results on Tuesday that showed the company continues to grow in the segment that sells auto policies directly to consumers. Strong historical growth and high underwriting standards are other reasons to look closely at the stock, even though it is more pricey than the firm's archrivals.
IN PICTURES: How To Make Your First $1 Million

Second-Quarter Overview
Net premiums written grew 5% to $3.7 billion while net premiums earned increased 4% to $3.6 billion. Investment losses, the second primary revenue item for insurance companies that comes in the form of net investment income, sent net income down 15% to $211.9 million, or 32 cents per share. The combined ratio improved ever slightly to 92.7.

A Direct focus
Progressive continues to steal a page from Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) GEICO insurance unit by focusing on selling automobile insurance directly to consumers. Direct auto saw a 15% jump in policies in June while policies sold through insurance agents only grew 3%. Direct policies now represent 44% of total personal auto policies in force. The company also offers insurance on "special line" products such as mobile homes, recreational vehicles, and even snowmobiles. It also operates a small commercial auto segment. (Learn more about auto insurance, see Beginner's Guide To Auto Insurance.)

Year-to-Date Results and Outlook
For the first two quarters of its fiscal year, Progressive reported low single-digit growth in net premiums earned and investment income. Total revenues reached $7.4 billion while net income increased 5% to $507.5 million, or 76 cents per diluted share.

For the full year, analysts expect a modest increase in revenue to $14.7 billion and earnings of $1.48 per share, which would represent a year-over-year decline of approximately 7%.

Bottom Line
At a recent share price of about $20, Progressive continues to trade at a hefty premium to reported quarter-end book value of $9.44 per share. A forward P/E multiple of 13.5 is more reasonable, but it's still ahead of peers that include Travelers (NYSE:TRV) and Allstate (NYSE:ALL) that trade at single-digit forward multiples.

However, Progressive stands out as it has managed to grow premium and investment income in the double digits over the past five- and 10-year periods. Continued growth will rely on selling direct to consumers. Progressive also has a reputation for conservative underwriting standards, which should help minimize downside risk.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  9. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  10. Investing Basics

    How to Diversify with International Stocks

    Diversifying with international stocks can benefit most portfolios, but beware of country risk.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!