Progressive Corp PGR

Progressive Earnings: Higher Interest Rates and Better Pricing Boost Returns

Progressive and the other personal auto insurers have struggled the past couple of years. But Progressive has handled this period much better than its peers, and we've seen signs that results were improving. In the first quarter, the company more than fully moved past these issues, with strong underwriting results and ongoing benefits from higher interest rates. We estimate the annualized return on equity for the quarter at 40%, which gives a sense of how favorable the environment has become for the narrow-moat company. We maintain our $137 fair value estimate and continue to see the shares as materially overvalued. The market seems focused on the near-term strength Progressive is seeing, but we think that the current situation is transitory and that over time, returns will move more in line with prepandemic averages.