Progressive leads the way as analysts bet heavily on insurance stocks

Most investors dismiss insurance stocks as a boring niche in the financial sector, without realizing that this industry could significantly outperform all others in an economy marked by the threat of persistently higher inflation. Today's environment is ripe for insurance companies to continue to recover later this year, if not to continue their upward momentum into 2025.

Markets do not need to understand the pros and cons of insurance to know that as the price of the insured asset increases, so do the insurance premiums charged to protect that item. Additionally, insurance companies will increase their prices by a set premium to avoid possible further inflationary shocks, making them an ideal company to keep an eye on during rate-cutting cycles like today.

The main target, which has significant market share and is a household name, has become the Progressive Co. (NYSE:PGR)especially after the company announced its latest quarterly results to show investors how much growth they can expect if they choose to invest in insurance companies this cycle. Wall Street analysts agree, and the markets love it just as much.

Progressive stock gains signal strong growth

With inflation rising about 3% to 3.5% over the past 12 months, Progressive's newly written policies have had an amplified effect on the company's revenue. According to its latest quarterly results press release, Progressive reported an increase in net written premiums of up to 25%.

The addition of new policy premiums ultimately resulted in a 23% increase in Progressive's premiums, laying the foundation for further double-digit growth in the rest of the business. The bottom line was an exciting result for investors, with enough growth this quarter to attract Wall Street's attention.

A 108% increase in net income should be enough to send any stock into a new rally. Progressive stock price action shows that the company is currently trading at 96% of its 52-week high, indicating bullish interest in the stock today. But that's not all.

Wall Street analysts' earnings per share (EPS) forecast today assumes a flat pattern over the next 12 months, significantly below the recent track record Progressive has shown markets. In the last 12 months, Progressive reported EPS growth of up to 110% to $3.97.

All of this growth may not be priced in, even though the stock is trading near a 52-week high, and that's something some Wall Street analysts – alongside the broader markets – are reflecting in the way they expressed their views have started to notice moves towards Progressive stocks lately.

Wall Street Comments on the Future of Progressive Stock: Key Takeaways for Investors

As another benchmark, investors can now consider furthering their hunt for upside potential in the insurance industry. Here's what Wall Street has to say about progressive stocks. This is an especially important view since the company reported such a strong quarterly trend.

The consensus price target for Progressive stock today is $268.2 per share, implying upside of up to 5% from today's trading levels. Although this benchmark is good enough to outperform inflation this year, that's not why investors want to stick with this insurance business.

After the company reported double- and even triple-digit gains in its most recent quarter, Bank of America analysts reiterated their buy target on Progressive and coupled their assessment with a much higher price target this time around. These analysts expect the stock to trade as high as $331 per share, putting it at upside of up to 30% from today's levels, not to mention a new all-time high for the company.

Broader markets are also poised to express their bullish view of Progressive stock today, a trend that investors can see in the premiums being paid for the stock relative to industry peers. Progressive's price-to-book (P/E) ratio stands at 7.5x today, offering a significant premium to the insurance industry's average valuation of 2.2x.

Additionally, Progressive stock once again commands a premium on a price-to-earnings (P/E) ratio basis, trading at 21.7x compared to the industry's 15.6x multiple. Markets tend to overpay for stocks that they believe will outperform. Therefore, this time the premium is more than justified by Progressive's triple-digit EPS growth over the year.

Finally, there are even signs of bearish capitulation, as measured by the 8% decline in short interest for progressives over the past month, an accelerating trend as overall short interest declined in the third quarter of 2024.

Source MarketBeat