As a professional copywriter, I have witnessed many stocks struggle to consistently outperform the market. However, one notable exception is Progressive – a home-and-auto insurer that has managed to achieve impressive returns while maintaining one of the lowest levels of volatility within the S&P 500.
Strategic Analysis from BofA Analyst
Josh Shanker, a senior insurance analyst at BofA Securities, highlighted Progressive’s remarkable performance in his recent note. He pointed out that while few stocks can rival Nvidia’s staggering compound annual growth rate (CAGR) of 69% over the past decade, Progressive’s CAGR of 25%-26% places it in the top echelon of S&P 500 companies valued at $100 billion or more.
Low Volatility, High Efficiency
What sets Progressive apart is not just its stellar returns, but also its remarkable stability. With a beta of 0.67 – indicating lower volatility compared to the market average – Progressive stands out as one of the least volatile stocks in the S&P 500. In fact, its daily trading beta over the past year has dwindled to an impressive 0.21.
Analyst Recommendation and Price Target
Shanker’s bullish outlook on Progressive is reflected in his Buy rating on the stock and a revised price target of $261.00, up from $256.00. Despite currently trading around $188.00, BofA believes that Progressive’s valuation multiples indicate significant upside potential.
Market Positioning and Future Prospects
While some investors may deem Progressive’s shares as overpriced, BofA’s analysis suggests otherwise. Trading at 17.7 times consensus earnings per share compared to the S&P 500’s average of 18.9 times for 2025, there is a strong case for further appreciation in Progressive’s stock price.
In conclusion, Progressive’s unique combination of consistent returns and low volatility makes it an attractive option for investors seeking stability and growth in their portfolios.
The argument that 17.7 times 2025 consensus EPS is too much to pay for a stock such as Progressive is flawed for several reasons, according to BofA.
Historical Price to Earnings Ratios
First off, 17.7 times isn’t historically expensive. The average price to earnings multiple over the past 1-, 2-, 3-, 5-, and 10-year periods is as follows:
- 1 year: 18.0x
- 2 years: 18.4x
- 3 years: 18.4x
- 5 years: 16.9x
- 10 years: 16.1x.
Comparative Analysis
Secondly, stocks broadly are more expensive than in the past. Progressive shares currently trade at 93% of the S&P 500’s price to earnings ratio of 18.9 times. The average relative price to earnings multiple over various timeframes is:
- 1 year: 100%
- 2 years: 107%
- 3 years: 101%
- 5 years: 94%
- 10 years: 95%.
Earnings Forecast Discrepancy
Moreover, BofA argues that consensus numbers are too low. Their high EPS forecast of $13.85 is significantly higher (31%) than the consensus of $10.60.
Progressive’s Trading Multiples
Lastly, BofA highlights the inconsistency in Progressive’s trading multiples over time, emphasizing that historical figures failed to truly reflect the company’s fair value.
In conclusion, investors should consider the full picture before making judgements based solely on current valuation metrics.
