Valuation Now More Fair; Upgrade to Equal-weight

Research evidence excerpt

Valuation Now More Fair; Upgrade to Equal-weight

IdeaMValuation is now more fair, upgrade to Equal-weight. On an absolute basis, the

stock is relatively fair valued trading at ~12.5x 2027 consensus estimates. That said,

the company historically traded at low teens P/E multiple or lower during soft

markets ( Exhibit 5 ), so the current level of valuation is more on the lower end of

the valuation from our perspective. On a more normalized earnings multiple

perspective, the company averaged about ~93% combined ratio and on this

normalized basis. From this perspective, the stock is trading at ~13.3x NTM P/E

( Exhibit 6 ). Once again, this represents a somewhat fair valuation in our view given

we are in the soft market cycle now. As such, we believe an Equal-weight rating for

Progressive is appropriate. We increase our PT to $210/shr (applying a ~13.4x target

P/E valuation against our 2027e EPS of $15.60), which implies a 3.1x 2027e P/B

excluding AOCI valuation against 2027e operating ROE of 25.5%. We raise our

target 2027e multiple to ~13.4x (from ~12.2x) to reflect Progressive's better-than-

expected underwriting resilience relative to personal auto peers. Although the stock

appears fairly valued on an absolute basis, we believe sustained underwriting

outperformance supports a modestly higher multiple within its historical soft-

market valuation range.

Exhibit 5: Historical PGR P/E valuation over time

PGR - NTM P/E Valuation

25.0x

PGR - 12.1x L10Y Avg - 17.2x L5Y Avg - 18.7x

22.5x

Multiple 20.0x17.5x

P/E 15.0x

NTM 12.5x 12.1x

10.0x

7.5x

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Jul-22 Jul-23 Jul-24 Jul-25 Jul-26

Source: FactSet, Company data, Morgan Stanley Research

Exhibit 6: Progressive P/E valuation based on normalized total company