Last week, Progressive Corp. (PGR: 19.81 0.00 0.00%) declared the results of its buyback of approximately 35% of its 3.7% fixed-to-floating rate junior subordinated debentures. The debentures, due in 2067, amount to $350 million.Progressive disclosed that as of Friday, holders of $222.9 million of debentures had submitted valid tenders. The offer which began on June 10 will pay the tendering debt holders in cash on July 13, 2010.
Progressive’s decision to buy back approximately 16% its total debt of $2.2 billion as of March 31, 2010, will bring about a reduction in the outstanding debt position. From 2004 to 2006, the debt-to-capital ratio of the company has ranged from 4% to 19%. However, the leverage ratio spiked to a high of mid-30% in 2007 and 2008. In 2009, the ratio declined to 27.5%. As of May 2010, the debt-to-capital ratio stood at 25.8%.
Estimate Revision
Over the last 30 days, 2 of the 18 analysts covering the stock have upped their estimates for the second quarter of 2010, while 8 downward revisions were witnessed. Currently, the Zacks Consensus Estimate for the quarter is 35 cents per share, which would be down 4.35% from the year-ago quarter.
The higher number of downward estimate revisions for the quarter indicates a likelihood of downward pressure on the performance of the stock in the near term.
With respect to earnings surprises, the stock has been almost steady over the last four quarters, with positive surprises all through. The average remained positive at 11.8%. This implies that Progressive has surpassed the Zacks Consensus Estimate by 11.8% over that period.
Progressive is seen as a leader in product, service and distribution innovation, especially in personal auto. It is also a leader in underwriting technology and the application of quantitative analytics in pricing and risk selection. The company continues to benefit from its expanded offering and competitive rates.
Progressive continues to actively manage its capital position and return wealth to its shareholders in the form of share repurchases.
Last month, the rating agency Standard & Poor’s Ratings Services (“S&P”) affirmed “A+” counterparty credit rating on Progressive and upgraded the outlook to “stable” from “negative. Also, the rating agency Fitch Ratings affirmed Progressive’s issuer default rating at “A+”, its senior debt ratings at “A” and junior subordinated debt at “BBB+”. The rating agency reiterated its stable outlook.
| Analysts' Targets | |
| Credit Suisse | $22 |
| Hold | |
| Thursday, April 15, 2010 | |
| J.P. Morgan Securities | $22 |
| Market Underperformer | |
| Friday, March 26, 2010 | |
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