Progressive Corp Valuation – January 2019 $PGR

Company Profile (excerpt from Reuters): The Progressive Corporation, incorporated on February 4, 1965, is an insurance holding company. The Company’s insurance subsidiaries and affiliates provide personal and commercial automobile and property insurance, other specialty property-casualty insurance and related services. The Company operates through the Personal Lines, Commercial Lines and Property segments. It also offers vehicle insurance products that protect its customers against losses due to collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. The Company’s property insurance products protect its customers against losses due to damages to their structure or possessions within the structure, as well as liability for accidents occurring in the structure or on the property. Its non-insurance subsidiaries and affiliates generally support the Company’s insurance and investment operations. The Company operates its vehicle businesses and property business in the United States. The Company also sells personal auto physical damage and auto property damage liability insurance in Australia.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $34,408,800,000 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 96.23% Pass
5. Moderate PEmg Ratio PEmg < 20 18.83 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.92 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.13
MG Growth Estimate 10.46%
MG Value $92.18
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $45.44
MG Value based on 0% Growth $26.64
Market Implied Growth Rate 5.16%
Current Price $59.00
% of Intrinsic Value 64.00%

Progressive Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.85 in 2014 to an estimated $3.13 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Progressive Corp revealed the company was trading above its Graham Number of $41.86. The company pays a dividend of $0.68 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 18.83, which was below the industry average of 30.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Progressive Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $41.86
PEmg 18.83
PB Ratio 2.92
Dividend Yield 1.15%
TTM Dividend $0.68
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Long-Term Debt & Capital Lease Obligation $3,859,900,000
Total Assets $45,543,700,000
Intangible Assets $765,300,000
Total Liabilities $33,684,900,000
Shares Outstanding (Diluted Average) 586,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.88
Dec2017 $2.72
Dec2016 $1.76
Dec2015 $2.15
Dec2014 $2.15
Dec2013 $1.93
Dec2012 $1.48
Dec2011 $1.59
Dec2010 $1.61
Dec2009 $1.57
Dec2008 -$0.10
Dec2007 $1.65
Dec2006 $2.10
Dec2005 $1.74
Dec2004 $1.91
Dec2003 $1.42
Dec2002 $0.75
Dec2001 $0.46
Dec2000 $0.05
Dec1999 $0.33
Dec1998 $0.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.13
Dec2017 $2.22
Dec2016 $1.95
Dec2015 $1.98
Dec2014 $1.85
Dec2013 $1.68
Dec2012 $1.44
Dec2011 $1.37
Dec2010 $1.30
Dec2009 $1.22
Dec2008 $1.19
Dec2007 $1.81
Dec2006 $1.79
Dec2005 $1.50
Dec2004 $1.23
Dec2003 $0.79
Dec2002 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Progressive Corp Valuation – February 2018 $PGR
Progressive Corporation Valuation – June 2016 $PGR
11 Best Stocks For Value Investors This Week – 11/21/15
Progressive Corp Valuation – November 2015 Update $PGR
The Best Companies of the Insurance Industry – October 2015

Other ModernGraham posts about related companies

Aon PLC Valuation – November 2018 $AON
Travelers Companies Inc Valuation – November 2018 $TRV
Stewart Information Services Corp Valuation – August 2018 $STC
Kemper Corp Valuation – August 2018 $KMPR
CNO Financial Group Inc Valuation – August 2018 $CNO
Sun Life Financial Inc Valuation – August 2018 $TSE-SLF
American Financial Group Inc Valuation – August 2018 $AFG
Selective Insurance Group Inc Valuation – July 2018 $SIGI
Genworth Financial Inc Valuation – June 2018 $GNW
Prudential Financial Inc Valuation – June 2018 $PRU

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Progressive Corp Valuation – February 2018 $PGR

Company Profile (obtained from Marketwatch): Progressive Corp. is specialized in insurance products primarily related to motor vehicles. It offers insurance solutions for personal and commercial property casualty. It operates through the following segments: Personal Lines, Commercial Lines, Property, and Other Indemnity. The Personal Lines segment offers insurance for personal autos and recreational vehicles. The Commercial Lines segment writes primary liability and physical damage insurance for automobiles and trucks owned and operated predominately by small business in the business auto, for-hire transportation, contractor, for-hire specialty, and tow market. The Property segment covers residential property insurance for homeowners, other property owners, and renters. The Other Indemnity segment manages run-off businesses. The company was founded in 1965 and is headquartered in Mayfield Village, OH.

PGR Chart

PGR data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $33,490,488,743 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 55.77% Pass
5. Moderate PEmg Ratio PEmg < 20 23.12 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.63 Fail
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.49
MG Growth Estimate 5.23%
MG Value $47.23
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $36.11
MG Value based on 0% Growth $21.17
Market Implied Growth Rate 7.31%
Current Price $57.58
% of Intrinsic Value 121.92%

Progressive Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.85 in 2014 to an estimated $2.49 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Progressive Corp revealed the company was trading above its Graham Number of $32.55. The company pays a dividend of $0.68 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 23.12, which was above the industry average of 20.16.

Progressive Corp receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Graham Number $32.55
PEmg 23.12
PB Ratio 3.63
Dividend Yield 1.18%
TTM Dividend $0.68
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $3,306,300,000
Total Assets $38,701,200,000
Intangible Assets $819,300,000
Total Liabilities $29,416,400,000
Shares Outstanding (Diluted Average) 585,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.95
Dec2017 $2.72
Dec2016 $1.76
Dec2015 $2.15
Dec2014 $2.15
Dec2013 $1.93
Dec2012 $1.48
Dec2011 $1.59
Dec2010 $1.61
Dec2009 $1.57
Dec2008 -$0.10
Dec2007 $1.65
Dec2006 $2.10
Dec2005 $1.74
Dec2004 $1.91
Dec2003 $1.42
Dec2002 $0.75
Dec2001 $0.46
Dec2000 $0.05
Dec1999 $0.33
Dec1998 $0.51

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.49
Dec2017 $2.22
Dec2016 $1.95
Dec2015 $1.98
Dec2014 $1.85
Dec2013 $1.68
Dec2012 $1.44
Dec2011 $1.37
Dec2010 $1.30
Dec2009 $1.22
Dec2008 $1.19
Dec2007 $1.81
Dec2006 $1.79
Dec2005 $1.50
Dec2004 $1.23
Dec2003 $0.79
Dec2002 $0.46

Recommended Reading:

Other ModernGraham posts about the company

Progressive Corporation Valuation – June 2016 $PGR
11 Best Stocks For Value Investors This Week – 11/21/15
Progressive Corp Valuation – November 2015 Update $PGR
The Best Companies of the Insurance Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15

Other ModernGraham posts about related companies

Aon PLC Valuation – February 2018 $AON
Travelers Companies Inc Valuation – February 2018 $TRV
Hanover Insurance Group Valuation – Initial Coverage $THG
Prudential Financial Inc Valuation – July 2017 $PRU
Assurant Inc Valuation – March 2017 $AIZ
American International Group Inc Valuation – March 2017 $AIG
Torchmark Corporation Valuation – March 2017 $TMK
Humana Inc Valuation – Initial Coverage $HUM
Chubb Ltd Valuation – March 2017 $CB
Stewart Information Services Corp Valuation – Initial Coverage $STC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Progressive Corporation Valuation – June 2016 $PGR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – March 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Progressive Corporation (PGR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Progressive Corporation is an insurance holding company. The Company’s insurance subsidiaries and affiliates provide personal and commercial automobile and property insurance, other specialty property-casualty insurance and related services. The Company operates through Personal Lines, Commercial Lines and Property segments. The Company operates its vehicle businesses and property business in the United States. It also sells personal auto physical damage and auto property damage liability insurance in Australia. Its Personal Lines segment writes insurance for personal autos, and recreational and other vehicles. Its Commercial Lines business writes primary liability, physical damage and other auto-related insurance for automobiles and trucks owned and/or operated predominately by small businesses as a part of the commercial auto market. Its Property business writes homeowners and renters insurance, primarily in the Agency channel in over 31 states and the District of Columbia.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – June 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $19,063,876,769 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 88.14% Pass
5. Moderate PEmg Ratio PEmg < 20 17.35 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.53 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PGR value chart June 2016

EPSmg $1.88
MG Growth Estimate 4.58%
MG Value $33.26
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $27.30
MG Value based on 0% Growth $16.00
Market Implied Growth Rate 4.42%
Current Price $32.66
% of Intrinsic Value 98.19%

Progressive Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $1.44 in 2012 to an estimated $1.88 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 4.42% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

Progressive Corp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

PGR charts June 2016

Graham Number $21.40
PEmg 17.35
PB Ratio 2.53
Current Dividend $0.89
Dividend Yield 2.72%
Number of Consecutive Years of Dividend Growth 3

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ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-term Debt $2,701,600,000
Total Assets $30,721,600,000
Intangible Assets $927,000,000
Total Liabilities $23,161,700,000
Shares Outstanding (Diluted Average) 585,500,000

Earnings Per Share History

Next Fiscal Year Estimate $1.57
2015-12 $2.15
2014-12 $2.15
2013-12 $1.93
2012-12 $1.48
2011-12 $1.59
2010-12 $1.61
2009-12 $1.57
2008-12 -$0.10
2007-12 $1.65
2006-12 $2.10
2005-12 $1.75
2004-12 $1.91
2003-12 $1.42
2002-12 $0.75
2001-12 $0.46
2000-12 $0.05
1999-12 $0.33
1998-12 $0.51
1997-12 $0.44
1996-12 $0.34

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.88
2015-12 $1.98
2014-12 $1.85
2013-12 $1.68
2012-12 $1.44
2011-12 $1.37
2010-12 $1.30
2009-12 $1.22
2008-12 $1.19
2007-12 $1.81
2006-12 $1.79
2005-12 $1.51
2004-12 $1.23
2003-12 $0.79
2002-12 $0.46
2001-12 $0.33
2000-12 $0.29

Recommended Reading:

Other ModernGraham posts about the company

11 Best Stocks For Value Investors This Week – 11/21/15
Progressive Corp Valuation – November 2015 Update $PGR
The Best Companies of the Insurance Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Progressive Corporation Analysis – August 2015 Update $PGR

Other ModernGraham posts about related companies

Cincinnati Financial Corporation Valuation – May 2016 $CINF
Lincoln National Corporation Valuation – May 2016 $LNC
Allstate Corporation Valuation – May 2016 $ALL
The Travelers Companies Valuation – May 2016 $TRV
Unum Group Valuation – March 2016 $UNM
Principal Financial Group Inc Valuation – March 2016 $PFG
Assurant Inc Valuation – February 2016 $AIZ
American International Group Inc Stock Valuation – February 2016 $AIG
Chubb Ltd Stock Valuation – February 2016 $CB
Humana Inc Stock Valuation – February 2016 $HUM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Progressive Corp Valuation – November 2015 Update $PGR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Progressive Corp (PGR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Progressive Corporation is an insurance holding company. The Company’s insurance subsidiaries and mutual insurance company affiliate provide personal auto insurance, commercial auto and truck insurance principally for small businesses, and other specialty property-casualty insurance and related services. The Company’s property-casualty insurance products protect its customers against losses due to collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. Its non-insurance subsidiaries and limited partnership investment affiliate support its insurance and investment operations.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,378,101,004 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 67.12% Pass
5. Moderate PEmg Ratio PEmg < 20 16.22 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.48 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PGR value Chart November 2015

EPSmg $1.94
MG Growth Estimate 6.20%
MG Value $40.45
Opinion Fairly Valued
MG Value based on 3% Growth $28.07
MG Value based on 0% Growth $16.46
Market Implied Growth Rate 3.86%
Current Price $31.40
% of Intrinsic Value 77.62%

Progressive Corp qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.37 in 2011 to an estimated $1.94 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.86% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Progressive Corp (PGR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PGR Charts November 2015

Graham Number $24.06
PEmg 16.22
PB Ratio 2.48
Dividend Yield 2.18%
Number of Consecutive Years of Dividend Growth 2

 

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Useful Links:

ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Long-Term Debt $2,714,300,000
Total Assets $29,935,000,000
Intangible Assets $956,900,000
Total Liabilities $22,473,000,000
Shares Outstanding (Diluted Average) 589,100,000

Earnings Per Share History

Next Fiscal Year Estimate $2.02
Dec14 $2.15
Dec13 $1.93
Dec12 $1.48
Dec11 $1.59
Dec10 $1.61
Dec09 $1.57
Dec08 -$0.10
Dec07 $1.65
Dec06 $2.10
Dec05 $1.74
Dec04 $1.91
Dec03 $1.42
Dec02 $0.75
Dec01 $0.46
Dec00 $0.05
Dec99 $0.33
Dec98 $0.51
Dec97 $0.44
Dec96 $0.34
Dec95 $0.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.94
Dec14 $1.85
Dec13 $1.68
Dec12 $1.44
Dec11 $1.37
Dec10 $1.30
Dec09 $1.22
Dec08 $1.19
Dec07 $1.81
Dec06 $1.79
Dec05 $1.50
Dec04 $1.23
Dec03 $0.79
Dec02 $0.46
Dec01 $0.33
Dec00 $0.29
Dec99 $0.40

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Insurance Industry – October 2015
15 Best Stocks For Value Investors This Week – 8/22/15
Progressive Corporation Analysis – August 2015 Update $PGR
30 Companies in the Spotlight This Week – 5/23/15
Progressive Corporation Quarterly Valuation – May 2015 $PGR

Other ModernGraham posts about related companies

Ace Limited Valuation – November 2015 Update $ACE
Travelers Companies Inc. Valuation – November 2015 Update $TRV
Lincoln National Corp Valuation – November 2015 Update $LNC
Unum Group Valuation – November 2015 Update $UNM
Principal Financial Group Valuation – November 2015 Update $PFG
Assurant Inc. Valuation – November 2015 Update $AIZ
American International Group Inc. Valuation – November 2015 Update $AIG
Cincinnati Financial Corp Valuation – November 2015 Update $CINF
American Financial Group Inc. Valuation – November 2015 Update $AFG
Loews Corporation Valuation – November 2015 Update $L

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

 

Progressive Corporation Analysis – August 2015 Update $PGR

In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Progressive Corporation (PGR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Progressive Corporation is an insurance holding company. The Company’s insurance subsidiaries and mutual insurance company affiliate provide personal auto insurance, commercial auto and truck insurance principally for small businesses, and other specialty property-casualty insurance and related services. The Company’s property-casualty insurance products protect its customers against losses due to collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. Its non-insurance subsidiaries and limited partnership investment affiliate support its insurance and investment operations.
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To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
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Downloadable PDF version of this valuation:

ModernGraham Valuation of PGR – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
5. Moderate PEmg Ratio PEmg < 20 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 1.91
MG Growth Estimate 5.87%
MG Value $38.57
Opinion Fairly Valued
MG Value based on 3% Growth $27.64
MG Value based on 0% Growth $16.20
Market Implied Growth Rate 3.96%
Current Price $31.30
% of Intrinsic Value 81.15%

Progressive Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.37 in 2011 to an estimated $1.91 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.96% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Progressive Corporation (PGR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PGR charts August 2015

PEmg 16.42
PB Ratio 2.51
Dividend Yield 2.19%
Number of Consecutive Years of Dividend Growth 2

 

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ModernGraham tagged articles Morningstar
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Most Recent Balance Sheet Figures

Long-Term Debt $2,739,000,000
Total Assets $29,304,200,000
Intangible Assets $998,900,000
Total Liabilities $21,944,400,000
Shares Outstanding (Diluted Average) 589,500,000

Earnings Per Share History

Next Fiscal Year Estimate $1.93
Dec14 $2.15
Dec13 $1.93
Dec12 $1.48
Dec11 $1.59
Dec10 $1.61
Dec09 $1.57
Dec08 -$0.10
Dec07 $1.65
Dec06 $2.10
Dec05 $1.74
Dec04 $1.91
Dec03 $1.42
Dec02 $0.75
Dec01 $0.46
Dec00 $0.05
Dec99 $0.33
Dec98 $0.51
Dec97 $0.44
Dec96 $0.34
Dec95 $0.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.91
Dec14 $1.85
Dec13 $1.68
Dec12 $1.44
Dec11 $1.37
Dec10 $1.30
Dec09 $1.22
Dec08 $1.19
Dec07 $1.81
Dec06 $1.79
Dec05 $1.50
Dec04 $1.23
Dec03 $0.79
Dec02 $0.46
Dec01 $0.33
Dec00 $0.29
Dec99 $0.40

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
Progressive Corporation Quarterly Valuation – May 2015 $PGR
5 Undervalued Companies to Research with a Low Beta – May 2015
40 Companies in the Spotlight This Week – 2/21/15
Progressive Corporation Quarterly Valuation – February 2015 $PGR

Other ModernGraham posts about related companies

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Travelers Companies Analysis – August 2015 Update $TRV
Lincoln National Corporation Analysis – August 2015 Update $LNC
Unum Group Analysis – August 2015 Update $UNM
Principal Financial Group Analysis – August 2015 Update $PFG
Assurant Inc. Analysis – August 2015 Update $AIZ
Arthur J Gallagher & Company Analysis – Initial Coverage $AJG
American International Group Inc. Analysis – August 2015 Update $AIG
Aspen Insurance Holdings Limited Analysis – Initial Coverage $AHL
Cincinnati Financial Corporation Analysis – August 2015 Update $CINF

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

Progressive Corporation Quarterly Valuation – May 2015 $PGR

220px-Progressive_Corporation.svgProgressive Corporation (NYSE:PGR) currently yields about a 2.5% dividend, and has grown its earnings well over the last few years. The company’s stock performance has significantly trailed the market recently despite this strong growth in earnings, which clearly may not be reflected in the current market price.

Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

PGR Chart

PGR data by YCharts

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Defensive Investor – Must pass all 6 of the following tests: Score = 4/6

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Earnings Stability – Positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  5. Moderate PEmg (price over normalized earnings) Ratio – PEmg is less than 20 – PASS
  6. Moderate Price-to-Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – Must pass all 3 of the following tests or be suitable for a Defensive Investor: Score = 3/3

  1. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  2. Dividend Record – Currently pays a dividend – PASS
  3. Earnings Growth – EPSmg greater than that 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $27.27
MG Value $32.02
MG Opinion Fairly Valued
Value Based on 3% Growth $26.04
Value Based on 0% Growth $15.27
Market Implied Growth Rate 3.34%
PEmg 15.18
PB Ratio 2.24

Balance Sheet – March 2015

Total Debt $2,560,000,000
Total Assets $26,881,000,000
Intangible Assets $0
Total Liabilities $19,679,000,000
Outstanding Shares 591,000,000

Earnings Per Share

2015 (estimate) $1.60
2014 $2.15
2013 $1.93
2012 $1.48
2011 $1.59
2010 $1.61
2009 $1.57
2008 -$0.10
2007 $1.65
2006 $2.10
2005 $1.74

Earnings Per Share – ModernGraham

2015 (estimate) $1.80
2014 $1.85
2013 $1.68
2012 $1.44
2011 $1.37
2010 $1.30

Dividend History

PGR Dividend Chart

PGR Dividend data by YCharts

Conclusion

Progressive Corporation passes the initial requirements of the Enterprising Investor, but not the more conservative Defensive Investor. The Defensive Investor is concerned by the company’s insufficient earnings or dividend stability over the last 10 years. The Enterprising Investor has no initial concerns, as the investor type is less conservative and looks at a shorter historical time period. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $1.37 in 2011 to an estimated $1.80 for 2015. This is a fairly strong level of demonstrated growth, and supports the market’s implied estimate for annual earnings growth of 3.34% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 6.2% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value within a margin of safety relative to the current price, indicating that Progressive is fairly valued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Progressive Corporation Quarterly Valuation – February 2015 $PGR

220px-Progressive_Corporation.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Progressive Corporation (PGR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Progressive Corporation is an insurance holding company. The Company’s insurance subsidiaries and mutual insurance company affiliate provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. The Company’s property-casualty insurance products protect customers against losses due to collision and physical damage to their motor vehicles, uninsured and underinsured bodily injury, and liability to others for personal injury or property damage arising out of the use of those vehicles. The Company operates businesses throughout the United States and sells personal auto insurance on an Internet-only basis in Australia. The Company offers personal and commercial property-casualty insurance products related to motor vehicles.

Defensive Investor – must pass all 6 of the following tests: Score = 3/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $26.61
MG Value $39.28
MG Opinion Undervalued
Value Based on 3% Growth $26.78
Value Based on 0% Growth $15.70
Market Implied Growth Rate 2.95%
PEmg 14.41
PB Ratio 2.27

Balance Sheet – December 2014

Total Debt $2,165,000,000
Total Assets $25,788,000,000
Intangible Assets $0
Total Liabilities $18,859,000,000
Outstanding Shares 592,100,000

Earnings Per Share

2014 $2.15
2013 $1.93
2012 $1.48
2011 $1.59
2010 $1.61
2009 $1.57
2008 -$0.10
2007 $1.65
2006 $2.10
2005 $1.74
2004 $1.91

Earnings Per Share – ModernGraham 

2014 $1.85
2013 $1.68
2012 $1.44
2011 $1.37
2010 $1.30
2009 $1.22

Dividend History

Conclusion:

Progressive Corporation is suitable the Enterprising Investor but not the more conservative Defensive Investor, who has concerns regarding the lack of earnings stability or sufficient earnings growth over the last ten years, along with the inconsistent dividend record.  The Enterprising Investor, on the other hand, has no initial concerns.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears undervalued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to $1.85 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.95% annual earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the market price.

Be sure to check out previous ModernGraham valuations of Progressive Corporation (PGR) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Progressive Corporation (PGR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Progressive Corporation (PGR) or in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Progressive Corporation Quarterly Valuation – November 2014 $PGR

220px-Progressive_Corporation.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Progressive Corporation (PGR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Progressive Corporation is an insurance holding company. The Company’s insurance subsidiaries and mutual insurance company affiliate provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. Its personal lines business includes insurance for personal autos and special lines products (such as motorcycles, all terrain vehicles (ATVs), recreational vehicles (RVs), mobile homes, watercraft and snowmobiles). Its Commercial Auto business offers products in 49 states. Its Claims business area is organized into four groups. Three of the groups are based on geographic region, and one is a nationwide group that provides various claims-related services, including catastrophe response and special investigations. Its non-insurance subsidiaries and limited partnership investment affiliate generally support its insurance and investment operations.

Defensive Investor – must pass all 6 of the following tests: Score = 3/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $27.20
MG Value $29.25
MG Opinion Fairly Valued
Value Based on 3% Growth $24.36
Value Based on 0% Growth $14.28
Market Implied Growth Rate 3.85%
PEmg 16.19
PB Ratio 2.33

Balance Sheet – September 2014

Total Debt $2,164,000,000
Total Assets $25,926,000,000
Intangible Assets $0
Total Liabilities $18,991,000,000
Outstanding Shares 593,700,000

Earnings Per Share

2014 (estimate) $1.65
2013 $1.93
2012 $1.48
2011 $1.59
2010 $1.61
2009 $1.57
2008 -$0.10
2007 $1.65
2006 $2.10
2005 $1.74
2004 $1.91

Earnings Per Share – ModernGraham 

2014 (estimate) $1.68
2013 $1.68
2012 $1.44
2011 $1.37
2010 $1.30
2009 $1.22

Dividend History

Conclusion:

Progressive Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the inconsistent dividend history, and the lack of earnings growth or stability over the last ten years, while the company passes all of the Enterprising Investor’s requirements.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears fairly valued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to an estimated $1.68 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.85% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.

Be sure to check out previous ModernGraham valuations of Progressive Corporation (PGR) for a broader perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Progressive Corporation (PGR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Progressive Corporation (PGR) or in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Progressive Corporation Quarterly Valuation – August 2014 $PGR

220px-Progressive_Corporation.svgIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to whittle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Progressive Corporation (PGR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Progressive Corporation is an insurance holding company. The Company’s insurance subsidiaries and mutual insurance company affiliate provide personal and commercial automobile insurance and other specialty property-casualty insurance and related services. Its personal lines business includes insurance for personal autos and special lines products (such as motorcycles, all terrain vehicles (ATVs), recreational vehicles (RVs), mobile homes, watercraft and snowmobiles). Its Commercial Auto business offers products in 49 states. Its Claims business area is organized into four groups. Three of the groups are based on geographic region, and one is a nationwide group that provides various claims-related services, including catastrophe response and special investigations. Its non-insurance subsidiaries and limited partnership investment affiliate generally support its insurance and investment operations.
PGR Chart

PGR data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 3/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $24.56
MG Value $28.43
MG Opinion Fairly Valued
Value Based on 3% Growth $24.17
Value Based on 0% Growth $14.17
Market Implied Growth Rate 3.12%
PEmg 14.74
PB Ratio 2.14

Balance Sheet – 6/30/2014

Total Debt $2,208,000,000
Total Assets $25,452,700,000
Intangible Assets $0
Total Liabilities $18,663,500,000
Outstanding Shares 591,500,000

Earnings Per Share

2014 (estimate) $1.61
2013 $1.93
2012 $1.48
2011 $1.59
2010 $1.61
2009 $1.57
2008 -$0.10
2007 $1.66
2006 $2.10
2005 $1.74
2004 $1.91

Earnings Per Share – ModernGraham 

2014 (estimate) $1.67
2013 $1.68
2012 $1.44
2011 $1.37
2010 $1.30
2009 $1.22

Dividend History
PGR Dividend Chart

PGR Dividend data by YCharts

Conclusion:

Progressive Corporation qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned by the lack of earnings stability or growth over the last ten years and the inconsistent dividend history, but the company passes all of the Enterprising Investor’s requirements.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  As for a valuation, the company appears fairly valued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to an estimated $1.67 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 3.12% earnings growth and leads the ModernGraham valuation model, which is based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Progressive Corporation (PGR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Progressive Corporation (PGR) or in any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

Lam Research Corp Valuation – April 2019 #LRCX

Company Profile (excerpt from Reuters): Lam Research Corporation, incorporated on October 8, 1989, is a supplier of wafer fabrication equipment and services to the semiconductor industry. The Company designs, manufactures, markets, refurbishes and services semiconductor processing systems that are used in the fabrication of integrated circuits (ICs). The Company operates through manufacturing and servicing of wafer processing semiconductor manufacturing equipment segment. The Company’s products are designed to enable its customers build a range of devices that are used in a range of electronic products, including cell phones, tablets, computers, storage devices and networking equipment. The Company’s customer base includes semiconductor memory, foundry and integrated device manufacturers (IDMs) that make products, such as dynamic random-access memory (DRAM), negative-AND (NAND) memory and logic devices. The Company offers a portfolio of products that are used in several areas of the semiconductor manufacturing process flow, including thin film deposition, plasma etch and single-wafer clean. The Company also offers a range of services, including customer service, spares, upgrades, and refurbishment of its deposition, etch and clean products. The Company also provides refurbished legacy products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LRCX – April 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $29,332,951,738 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.39 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 259.29% Pass
6. Moderate PEmg Ratio PEmg < 20 18.10 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.34 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.39 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.35 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $10.63
MG Growth Estimate 15.00%
MG Value $409.23
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $154.13
MG Value based on 0% Growth $90.35
Market Implied Growth Rate 4.80%
Current Price $192.35
% of Intrinsic Value 47.00%

Lam Research Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.9 in 2015 to an estimated $10.63 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Lam Research Corporation revealed the company was trading above its Graham Number of $110.67. The company pays a dividend of $2.55 per share, for a yield of 1.3% Its PEmg (price over earnings per share – ModernGraham) was 18.1, which was below the industry average of 35.4, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $14.98.

Lam Research Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $14.98
Graham Number $110.67
PEmg 18.10
Current Ratio 3.39
PB Ratio 5.34
Current Dividend $2.55
Dividend Yield 1.33%
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $7,355,845,000
Total Current Liabilities $2,166,837,000
Long-Term Debt $1,813,190,000
Total Assets $10,768,458,000
Intangible Assets $1,736,468,000
Total Liabilities $4,927,086,000
Shares Outstanding (Diluted Average) 162,170,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.98
Jun2018 $13.17
Jun2017 $9.24
Jun2016 $5.22
Jun2015 $3.70
Jun2014 $3.62
Jun2013 $0.66
Jun2012 $1.35
Jun2011 $5.79
Jun2010 $2.71
Jun2009 -$2.41
Jun2008 $3.47
Jun2007 $4.85
Jun2006 $2.33
Jun2005 $2.09
Jun2004 $0.54
Jun2003 -$0.06
Jun2002 -$0.71
Jun2001 $0.39
Jun2000 $1.53
Jun1999 -$0.98

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $10.63
Jun2018 $8.63
Jun2017 $5.74
Jun2016 $3.63
Jun2015 $2.90
Jun2014 $2.61
Jun2013 $1.94
Jun2012 $2.45
Jun2011 $2.96
Jun2010 $1.76
Jun2009 $1.54
Jun2008 $3.23
Jun2007 $2.72
Jun2006 $1.39
Jun2005 $0.76
Jun2004 $0.18
Jun2003 $0.01

Recommended Reading:

Other ModernGraham posts about the company

Lam Research Corp Valuation – June 2018 $LRCX
Lam Research Corp Valuation – September 2017 $LRCX
12 Best Stocks For Value Investors This Week – 7/1/16
Lam Research Corp Valuation – June 2016 $LRCX
19 Best Stocks For Value Investors This Week – 1/9/16

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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