MKM Disects Progressive's July Results

Auto insurance company Progressive Corp PGR reported a financial update for the month of July where the company showed a modest but expected slowdown in personal auto policies, according to MKM.

The Analyst

MKM Partners analyst Harry Fong maintains a Buy rating on Progressive with a $100 price target.

The Thesis

Personal auto policies-in-force rose 11.8% during July which represents a slowdown from recent months which ranged between 12.5% and 13.5% and 14% throughout 2018, Fong wrote in a note. The slowdown is attributed to growing competition but there is reason to believe Progressive can expand at a faster pace versus the competition amid expansion into bundled markets and commercial insurance.

Auto insurance companies are showing better performance in recent months due to a favorable auto loss frequency, the analyst wrote. In Progressive's case, frequency has been ranging at around 4% recently while severity has been elevated at around 8%.

"Our sense is that Progressive has been staying even with loss cost trends through the first quarter of 2019, but it may have slowed the pace of rate actions in the second quarter," the analyst also wrote. "This change if real will likely begin to show up over the next few months."

Finally, Progressive's strong July performance prompted the research firm to lift its 2019 EPS estimate from $5.15 to $5.30 but estimates for 2020 remain unchanged at $5.00. The company continues to "surprise" with good underwriting results despite an uptick in competition.

Price Action

Shares of Progressive traded higher by 2% Thursday at $77.09.

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