Progressive still earns strong margins, but premium growth slowed to 4 percent last quarter. At $213.46 I see 8 percent downside to $195.48 on thinner 2027 margins.
Key points
- $4.37 per share in Q3 2026 fell 2 percent from a year ago as premium growth slowed to 4 percent in that quarter.
- 90.0 percent combined ratio in September 2026, the share of premiums spent on claims and costs in that month, left thin margin in that month.
- 6 percent policy growth in September 2026 slowed from 7 percent in June 2026 as rivals chased shoppers again in 2026.
The call
Growth has slowed but the price still demands peak profit. At $213.46 per share in October 2026, the stock needs about $19.41 per share of profit in 2027.
Shares down 11 percent in a year on slower growthSource: Rallies prices to Oct 14 2026.
Margins look set to narrow as price cuts bite in 2027. I expect $17.77 per share of profit in 2027 at a 91 percent combined ratio, the share of premiums spent on claims and costs in 2027.
Valuation
| Driver | Estimate |
|---|
| Earned premium in 2027, premiums recorded as revenue in 2027 | $91.5 billion |
| Combined ratio in 2027, share of premiums spent on claims and costs in 2027 | 91 percent |
| Profit in 2027 | $17.77 a share |
| Multiple in 2027, price paid per dollar of profit in 2027 | 11 times |
| Target in 2027 | $195.48 a share |
Target falls fast if the loss ratio slipsSource: My estimates on $91.5B earned premium at 11 times profit.
Eleven times profit in 2027 fits a large auto insurer growing slowly in 2027. It matches 10.7 times past profit paid in October 2026. If the ratio stays near 89 percent in 2027 then upside wins, so the downside skew calls for a sell.
Risks
- Price cuts fail to lift shopping and growth stays near 2 percent early in 2027, which I would see in monthly written premium reports in that period.
- Parts and medical inflation lifts loss costs in 2027, which I would see in the monthly loss ratio rising above 70 percent in that period.
- Storms drive heavy catastrophe losses in 2027, which I would see in monthly combined ratios above 95 percent in storm season in 2027.
What would change my mind
I would turn positive if earned premium growth tops 8 percent early in 2027 while the combined ratio stays below 89 percent in that period.