Progressive Leads the Way as Analysts Bet Big on Insurance Stocks

Key Points

• Insurance stocks might be the hottest thing to watch in this cycle's finance sector.
• Progressive stock is one outlier in the space, posting double and even triple-digit growth rates this quarter.
• Wall Street analysts think there is still an additional double-digit rally due in this company.

Most investors dismiss insurance stocks as the boring niche in the finance sector without realizing that this industry could significantly outperform all others during an economy ridden by threats of prolonged higher inflation. Today’s environment is ripe for insurance businesses to rally further into the year, if not continue their bullish momentum into 2025.

Markets don’t need to understand the insurance ins and outs to know that when the price of the assets being insured increases, so do the insurance premiums being charged to protect that item. Not only that, insurance companies will increase prices by a set premium to avoid any further inflation shocks that may come their way, making them the perfect business to keep in mind during interest rate cut cycles such as today.

The prime target, who holds significant market share and is a household name, has become the Progressive Co. NYSE: PGR, especially after the company reported its latest set of quarterly earnings to show investors just how much growth awaits them by choosing to invest in insurance companies this cycle. Wall Street analysts agree, and markets love it just as much.

Progressive Stock Earnings Signal Strong Growth

With inflation up roughly 3% to 3.5% over the past 12 months, Progressive's new signed-up policies had a compound effect on the company's revenues. According to the latest quarterly earnings press release, Progressive reported up to 25% jumps in net premiums written.

The addition of new premiums through policies ended up raising Progressive's premiums by 23%, laying the foundation for further double-digit growth in the rest of the business. The bottom line, exciting to investors, saw enough growth to get Wall Street's attention this quarter.

A 108% expansion in net income should be enough to send any stock into a new rally. Progressive stock's price action shows the company now trading at 96% of its 52-week high as a sign of bullish interest surrounding the stock today. But it doesn't stop there.

Earnings per share (EPS) forecasts from Wall Street analysts today are set for a flattish pattern in the next 12 months, which is considerably below the recent track record Progressive has shown markets. Over the past 12 months, Progressive reported EPS growth of up to 110% to reach $3.97.

All of this growth might not be priced in, despite the stock trading near a 52-week high price, and that is something a few Wall Street analysts – alongside broader markets – have started to notice in the way they've expressed their views and action toward Progressive stock lately.

Wall Street Weighs In on Progressive Stock's Future: Key Insights for Investors

Now, for another gauge, investors can consider moving forward in their hunt for upside in the insurance industry; here is what Wall Street has to say about Progressive stock. This is a particularly important view now that the company has reported such a strong quarterly trend.

The consensus price target for Progressive stock is $268.2 a share today, which calls for up to 5% upside from where it trades today. While this benchmark is good enough to beat inflation this year, that’s not why investors want to stick around for this insurance play.

After the company released its latest quarter, filled with double—and even triple-digit growth, analysts at Bank of America reiterated their Buy target for Progressive, this time coupling their view with a much higher price target. These analysts see the stock trading as high as $331 a share, daring it to rally by as much as 30% from where it trades today, not to mention a new all-time high for the company.

Broader markets are also willing to express their bullish view for Progressive stock today, a trend investors can see in the premiums paid for the stock compared to peers in the industry. Progressive’s price-to-book (P/B) ratio of 7.5x today commands a significant premium over the insurance industry’s average 2.2x valuation.

More than that, on a price-to-earnings (P/E) basis, Progressive stock again commands a premium as it trades at 21.7x compared to the industry’s 15.6x multiple. Markets will typically overpay for stocks they believe will grow at above-average rates, so this time, the premium is more than justified in Progressive’s triple-digit EPS growth during the year.

Lastly, there are even signs of bearish capitulation, judging by the 8% decline in short interest for Progressive over the past month, an accelerating trend as overall short interest has declined during the third quarter of 2024.