In addition to being one of the largest auto insurers in the United States, Progressive Corporation (PGR) is one of the top homeowners’ insurance carriers. Over the past three years, the stock rallied more than 53% to close yesterday’s trading session at $87.79. This can be attributed to the company’s impressive performance over this period driven by consistent product and service innovations.

While most property and casualty insurers struggled to deal with the pandemic as well as historic catastrophe season in the first nine months of 2020 and reported a significant decline in underwriting gains, PGR performed better than many of its competitors. The company is strategically positioned to gain in the near term based on rising demand for its flexible and bundled insurance offerings with recovery in the auto industry and rising property purchases.

Here’s why I think PGR could perform well in the upcoming months:

Impressive Historical Growth

The company has evolved from being the first to introduce the industry's first drive-in claims location to be the first insurer to offer a voice action on Alphabet Inc.’s (GOOGL) Google Home in 2017. PGR also made shopping online for bundled auto and homeowners’ policies easier and faster by integrating HomeQuote Explorer with its Direct Auto quoting experience.

Driven by these developments along with other factors, the company’s revenue increased at a CAGR of 15.4% over the past five years. The company’s EPS and EBITDA increased at CAGRs of 52.6% and 45%, respectively, over the past three years.

Strategic Acquisition and Increasing Adaptation to Digital Means

PGR entered into a definitive agreement on February 16, 2021, to acquire all of the outstanding Class A and Class B common shares of Protective Insurance Corporation (PTVCA). The acquisition which is expected to be closed by the end of the third quarter of 2021 is expected to drive the expansion of PGR’s commercial line products.

With the help from Microsoft Corporation’s (MSFT) Microsoft Azure, the company launched the Flo chatbot on February 4, 2021, to streamline the customer inquiry process while delivering differentiated digital experiences to policyholders, meeting people wherever they are within their customer journey.

Impressive Recent Financials

PGR’s total revenues for January 2021 increased 11.4% year-over-year to $4.20 billion. Net premiums were written increased 13.8% year-over-year to $4.10 billion for the same period. Moreover, net income increased 81.6% year-over-year to $557.50 million. PGR has also surpassed the consensus EPS estimate in each of the trailing four quarters.

Consensus Price Target Indicates Solid Upside

Wall Street analysts expect the stock to hit $99.38 in the near term, which indicates a potential upside of 14.2%.

Favorable POWR Ratings

PGR has an overall rating of B which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Out of these categories, the stock has a grade of B for Stability.

We have also given PGR grades for Momentum, Sentiment, Quality, Growth, and Value. Click here to get all of PGR’s ratings.

The stock is ranked #14 of 61 stocks in the B-rated Insurance - Property & Casualty industry.

There are fourteen other top-rated stocks in the same industry. Click here to access them.

Bottom Line

The recovering economy should help the company witness rising demand for its products. Moreover, PGR is strategically positioned to gain based on its impressive financials and strategic acquisitions. 

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PGR shares were trading at $89.52 per share on Tuesday afternoon, up $1.73 (+1.97%). Year-to-date, PGR has declined -5.04%, versus a 2.61% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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