Most investors dismiss insurance stocks as the boring niche of the financial sector without realizing that this sector could significantly outperform all others in an economy beset by the threat of prolonged higher inflation. The current environment is ripe for insurance companies to recover further into the year or fail to continue their bullish momentum into 2025.

The markets don’t need to understand the ins and outs of insurance to know that when the price of the insured asset rises, so do the insurance premiums charged to protect that asset. Not only that, insurance companies will increase prices by a fixed premium to avoid further inflation shocks, making them the perfect company to keep in mind during rate cut cycles like today.

Its main target, which has a significant market share and is a household name, is the Progressive Co. (NYSE: PGR)especially after the company reported its latest quarterly results to show investors how much growth awaits them if they choose to invest in insurance companies this cycle. Wall Street analysts agree, and the markets love it just as much.

Progressive stock gains indicate strong growth

With inflation rising about 3% to 3.5% over the past twelve months, Progressive’s new policies had a compounding effect on the company’s earnings. According to its latest quarterly results press release, Progressive reported an increase in net premiums of up to 25%.

The addition of new premiums through policies increased Progressive’s premiums by 23%, laying the foundation for continued double-digit growth across the rest of the business. The result, exciting for investors, showed enough growth to capture Wall Street’s attention this quarter.

A 108% increase in net income should be enough to send any stock into another rally. Progressive stock price action shows the company now trading at 96% of its 52-week high, in a sign of rising interest in the stock today. But it doesn’t stop there.

Today’s earnings per share (EPS) forecasts from Wall Street analysts are for a flat pattern over the next twelve months, which is significantly lower than the recent track record Progressive has shown the markets. Over the last twelve months, Progressive reported earnings per share growth of up to 110% to $3.97.

All this growth may not be priced in, despite the stock trading at a nearly 52-week high, and that’s something a few Wall Street analysts — in addition to the broader markets — have begun to notice in the way they have been expressing their views and taking action towards progressive stocks lately.

Wall Street weighs in on the future of progressive stocks: Key insights for investors

Now, as another benchmark, investors may want to consider going further in their pursuit of profits in the insurance sector; Here’s what Wall Street has to say about progressive stocks. This is an especially important insight now that the company has reported such a strong quarterly trend.

The consensus price target for Progressive stock today is $268.2 per share, which calls for an upside of up to 5% from current trading. While this benchmark is good enough to beat inflation this year, that’s not why investors want to get stuck in this insurance play.

After the company announced its latest quarter, full of double and even triple-digit growth, Bank of America analysts reiterated their buy target for Progressive, this time coupled with a much higher price target. These analysts see the stock price rising to $331 per share, and dare it to rise as much as 30% from where it’s currently trading, not to mention a new all-time high for the company.

Broader markets are also willing to express their bullish views on Progressive stock today, a trend that investors can see in the premiums paid for the stock compared to peers. Progressive’s price-to-book ratio (P/B) of 7.5x today offers a significant premium to the insurance industry’s average valuation of 2.2x.

In fact, on a price-to-earnings (P/E) basis, Progressive shares once again command a premium, trading at 21.7x, compared to the industry’s multiple of 15.6x. Markets will typically overpay for stocks they think will grow above average, so this time the premium is more than justified given Progressive’s triple-digit earnings per share for the year.

Finally, there are even signs of bearish capitulation, as evidenced by the 8% drop in short interest for Progressive over the past month, an accelerating trend as overall short interest has fallen in Q3 2024.

Source MarketBeat