FBR Capital Markets Thursday increased its price target on auto insurance company Progressive Corp. (PGR) to reflect the growth in book value. However, the brokerage said its valuation was keeping it on the sidelines. FBR maintained its "Market Perform" rating on the stock.
In addition, the brokerage raised its 2009 operating earnings estimate for the company to $1.50 from $1.45 per share to reflect lower combined ratio outlook for 2009.
Analyst Bijan Moazami said he was pleased with the company's operating results for October and believes that pricing improvement will likely drive profitability materially.
FBR raised the price target to $18 from $17 based on a 12x multiple on 2010 EPS of $1.50.
FBR is quite positive on the outlook for personal auto insurance, but prefers shares of The Allstate Corp. (ALL) over Progressive. It said at 2.13x book value, Progressive is trading at a 134% premium to Allstate.
The brokerage expects material improvement at the life insurance and homeowner's insurance segments at Allstate. Additionally, FBR's analysis suggests that Allstate's auto business is more profitable than Progressive's.
PGR is currently trading at $17.14, down $0.15 or 0.87%, on 69,755 shares.
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