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
Other ModernGraham posts about related companies
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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