2023-07-25 09:51:49 ET
Morgan Stanley downgraded Progressive ( NYSE: PGR ) to Underweight from Equalweight as continued reserve charges this year weigh on the auto and home insurer's earnings.
The stock has been trading at a premium to peer Allstate ( ALL ), a trend that look unsustainable for the medium-term, said Morgan Stanley analyst Bob Huang.
Looking only at Progressive's ( PGR ) Personal Lines segment, Huang says Morgan Stanley's analyses calculate that the insurer still needs an additional $94M-$1.1B for the remainder of 2023. "Deteriorating developments, especially in auto liability & physical damage severity, could result in additional unfavorable prior year development," Huang wrote in a note to clients.
Still, he expects the company to work through the issue in 2023 without crippling its 2024 outlook.
The analyst sees more attrictive risk adjusted return potential in names such as Arch Capital ( NASDAQ: ACGL ) and Everest Group ( NYSE: EG ).
Even with the headwinds, he expects Progressive ( PGR ) to impoved its underwriting profitability and premium growth over the next year.
Huang lowered his estimate on PGR 2023 EPS to $3.95 from $5.25 and for 2024 EPS to $7.31 from $7.99. Target price is cut to $114 from $135.
His Underweight rating is more bearish than the SA Quant rating , SA Analysts' rating , and average Wall Street analyst rating , all at Hold.
More on Progressive:
- Progressive raised to Overweight at JPM on earnings power, growth potential
- Progressive stock rout deepens as Wells Fargo cuts to Equal Weight
- Progressive: 2nd-Worst Day Since 2002 Following an EPS Miss, Stock Near Support
- Progressive stock retreats as Q2 earnings miss on higher combined ratio
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Progressive cut to Underweight at Morgan Stanley as reserve charges loom