The Progressive Corporation (NYSE:PGR) shares are up more than 43.94% this year and recently increased 0.69% or $0.35 to settle at $51.10. The Allstate Corporation (NYSE:ALL), on the other hand, is up 34.16% year to date as of 11/13/2017. It currently trades at $99.44 and has returned 0.35% during the past week.
The Progressive Corporation (NYSE:PGR) and The Allstate Corporation (NYSE:ALL) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect PGR to grow earnings at a 23.09% annual rate over the next 5 years. Comparatively, ALL is expected to grow at a 15.54% annual rate. All else equal, PGR’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 12.84% for The Allstate Corporation (ALL). PGR’s ROI is 10.80% while ALL has a ROI of 7.50%. The interpretation is that PGR’s business generates a higher return on investment than ALL’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. PGR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.99. Comparatively, ALL’s free cash flow per share was +4.45. On a percent-of-sales basis, PGR’s free cash flow was 4.94% while ALL converted 4.37% of its revenues into cash flow. This means that, for a given level of sales, PGR is able to generate more free cash flow for investors.
PGR’s debt-to-equity ratio is 0.36 versus a D/E of 0.31 for ALL. PGR is therefore the more solvent of the two companies, and has lower financial risk.
PGR trades at a forward P/E of 18.09, a P/B of 3.20, and a P/S of 1.15, compared to a forward P/E of 13.65, a P/B of 1.76, and a P/S of 0.93 for ALL. PGR is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. PGR is currently priced at a 1.25% to its one-year price target of 50.47. Comparatively, ALL is -1.89% relative to its price target of 101.36. This suggests that ALL is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for PGR and 2.30 for ALL, which implies that analysts are more bullish on the outlook for PGR.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. PGR has a beta of 0.89 and ALL’s beta is 1.08. PGR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. PGR has a short ratio of 2.07 compared to a short interest of 1.85 for ALL. This implies that the market is currently less bearish on the outlook for ALL.
The Allstate Corporation (NYSE:ALL) beats The Progressive Corporation (NYSE:PGR) on a total of 9 of the 14 factors compared between the two stocks. ALL is growing fastly, has higher cash flow per share and has lower financial risk. In terms of valuation, ALL is the cheaper of the two stocks on an earnings, book value and sales basis, ALL is more undervalued relative to its price target. Finally, ALL has better sentiment signals based on short interest.