The Progressive Corporation (PGR) Thoughts on Price to Book

Balance Sheet

Progressive’s balance sheet was already good, but keeps getting better.  Between September 2011 and September 2012 Progressive paid off debt, reducing it from $2.443 Billion to $2.062 Billion.  Part of this was through debt-buyback and part was redeeming for cash their January 2012 $350 Million note.  After their $150 Million note due October 2013 their next maturity is in 2021 (and its interest rate is 3.75%!)  With 8 years before any debt is due, Progressive has maximum financial flexibility.

Equally impressive is the return of capital to shareholders in the past year.  In November, Progressive issued a special dividend of $1, and still had capital to bought back 8.4 million shares in the first 9 months of 2012.  So far the buyback has been accretive to shareholders as the average cost to buy back the shares was $20.25 and Progressive is now selling around $24.

The Verdict

I was predisposed to dislike Progressive due to one quick look at price to book, but after looking under the hood, I am impressed. It looks to me that Progressive’s stock reflects its laser focus, business model,  and strong balance sheet.  If the company feels strong enough about their future to buy back shares at 2.4 times book, than I can too.   I will look to add Progressive to my portfolio a few days after this article is published.  I figure having Progressive and AIG as my insurance stocks gives me a great blend of growth and value investing.

The article Progressive Thoughts on Price to Book originally appeared on Fool.com and is written by Joel Eggerding.

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