The Progressive Corporation (NYSE:PGR) shares are up more than 35.46% this year and recently decreased -0.95% or -$0.46 to settle at $48.09. State National Companies, Inc. (NASDAQ:SNC), on the other hand, is up 51.52% year to date as of 10/18/2017. It currently trades at $21.00 and has returned -0.14% during the past week.
The Progressive Corporation (NYSE:PGR) and State National Companies, Inc. (NASDAQ:SNC) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
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 22.70% annual rate over the next 5 years.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 35.34% for State National Companies, Inc. (SNC). PGR’s ROI is 10.80% while SNC has a ROI of 15.10%. The interpretation is that SNC’s business generates a higher return on investment than PGR’s.
Cash is king when it comes to investing. PGR’s free cash flow (“FCF”) per share for the trailing twelve months was +1.51. Comparatively, SNC’s free cash flow per share was +0.05. On a percent-of-sales basis, PGR’s free cash flow was 3.74% while SNC converted 0% 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 0.38 versus a D/E of 0.14 for SNC. PGR is therefore the more solvent of the two companies, and has lower financial risk.
PGR trades at a forward P/E of 17.42, a P/B of 3.10, and a P/S of 1.12, compared to a forward P/E of 16.15, a P/B of 2.73, and a P/S of 3.76 for SNC. PGR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. 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
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. PGR is currently priced at a -2% to its one-year price target of 49.07. Comparatively, SNC is 6.76% relative to its price target of 19.67. This suggests that PGR 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 3.00 for SNC, which implies that analysts are more bullish on the outlook for SNC.
Insider Activity and Investor Sentiment
The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. PGR has a short ratio of 2.31 compared to a short interest of 0.66 for SNC. This implies that the market is currently less bearish on the outlook for SNC.
State National Companies, Inc. (NASDAQ:SNC) beats The Progressive Corporation (NYSE:PGR) on a total of 7 of the 14 factors compared between the two stocks. SNC is growing fastly, generates a higher return on investment and has lower financial risk. In terms of valuation, SNC is the cheaper of the two stocks on an earnings and book value, Finally, SNC has better sentiment signals based on short interest.