Progressive Perking Up

By Ryan C. Fuhrmann | April 07, 2011 AAA

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%.

Outlook
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.)

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