Auto insurer Progressive Corporation (NYSE:PGR) reported first quarter results on Thursday that were better than expected. The stock isn't cheap when comparing its price to quarter-end book value, but the company is one of the best managed insurers out there and growth trends could be perking up.
TUTORIAL: Stock Basics

First Quarter Recap
Total revenues increased a healthy 3.2% to $3.9 billion as net premiums earned rose 5% to account for 94% of the top line. Realized gains on the company's investment portfolio accounted for most of the rest and more than tripled to $99.7 million. Service revenue improved 24% and accounted for the remaining $5.2 million in revenues. Net premiums written, another measure of operating health, rose 3% to $3.9 billion.

Net income jumped 23% to $362.9 million, or 55 cents per diluted share. This came in ahead of analyst projections. The combined ratio, which is one of the primary profit measures for an insurance company and calculated by taking operating costs and dividing them by earned premiums, came in at 90.3%. A ratio below 100% signifies an underwriting profit. Return on equity was also strong at 18%.

Analysts currently expect full-year revenue growth in excess of 6% and total revenues of $15.4 billion. Profit expectations call for $1.58 in earnings, or nearly 5% ahead of last year's levels.

Bottom Line
Progressive is the fourth largest auto insurer behind privately-held State Farm, Allstate (NYSE:ALL), and Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) Geico insurance unit. A recent analysis by the investment blog the Rational Walk detailed that the performance of Progressive and Geico have been similar in recent years and it concluded that Geico has grown faster over the past decade and been more disciplined in its underwriting given a lower loss ratio. However, Progressive has been a very close second and extremely disciplined in its underwriting and overall cost controls.

As evidenced by a price-to-book multiple greater than two, Progressive isn't the cheapest insurer out there. For comparison purposes, Allstate's stock trades at approximately 88% of book value while property and casualty insurer Traveler's (NYSE:TRV), which also sells auto policies, trades at 102% of book. It also hasn't grown revenues or profits much in the last five years, but its ten-year track record is solid as it has grown the top line at over 8% annually and profits at nearly 40% each year over this period. Growth trends look to be rebounding again and make the shares worth a closer look. (For related reading that may be helpful, see Analyze Investments Quickly With Ratios.)

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

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  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 >>
Trading Center