Progressive Stock Catches a Downgrade. Wells Fargo Says Take the Exit Ramp.

“Exiting the highway,” wrote Greenspan in her downgrade report. “Our [Buy] rating was predicated on the thesis that Progressive could grow despite taking price. June results proved us wrong.”

Total automotive policies in force at the end of June came in at 19.66 million, down from 19.67 million in May. It’s a small change but it comes as underwriting profits are shrinking.

Progressive’s combined ratio—essentially underwriting and corporate expenses compared with revenue—came in at 104.9% in June. That means insurance underwriting was losing money. (Progressive still earns investment income on its insurance float.) The May combined ratio was 99%.

It was a disappointing result for Greenspan, and she adds in her report that shares should “be stuck” until insurance expenses start to normalize. Progressive also faces higher costs to pay auto claims as the value of new and used cars has increased in recent years.

The Manheim Used Vehicle Value Index, a closely watched indicator of used car prices, did drop 10% year over year in June, but prices are still up almost 40% compared with prepandemic levels. More expensive cars mean more costly repairs and auto insurance.

Investors weren’t thrilled with June results either. Progressive stock dropped 13.1% Thursday. Shares, however, were up 0.4% in recent trading Friday, while the
S&P 500
and
Dow Jones Industrial Average
were up 0.2% and 0.3%, respectively.

With the downgrade, about 33% of analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is about $143 a share.

Write to Al Root at [email protected]