BMO Capital Markets analyst Michael Zaremski reiterated the Market Perform rating on Progressive Corporation (NYSE:PGR), raising the price target from $125 to $130.
The company’s recently-reported July results were driven by a material improvement in the core auto loss ratios (all auto, including commercial), notes the analyst.
Zaremski thinks that the company benefited slightly from less recreational driving due to the heat.
Regarding growth, while it remained weak, the analyst notes that PGR’s expense ratio continued to fall/beat expectations, and growth did not fall apart accordingly. This is likely due to PGR continuing to benefit from most peers pushing 15%+ rate increases, leading to more shopping, which benefits lower-cost providers like PGR, the analyst adds.
PGR posted $(28) million of intra-year reserve additions in Personal Auto, offset by $28.5 million of prior-year reserve subtractions on a consolidated basis. This result was slightly better than the analyst’s expectation.
He estimates PGR’s near-term EPS to be supported by a lower-than-normal expense ratio.
Zaremski also increased his forward ’23/’24/’25 EPS estimates ~+13%/+1%/+1% to $4.76, $7.62 and $8.76 respectively.
He noted that the sharper increase in 2023 reflects lower estimated near-term loss and expense ratios.
The analyst thinks corrective profit actions are underway, and 2024 EPS should be buoyed by PGR undertaking significant expense/ad spend cuts, which should drive organic growth deeper into negative territory.
Price Action: PGR shares were trading lower by 0.43% to $135.56 on the last check Thursday.
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