Intrinsic value of Progressive Corp - PGR

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$40.10

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$40.10

 
Intrinsic value

$116.47

 
Up/down potential

+190%

 
Rating

str. buy

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as PGR.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PGR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 23.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.42
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.96
  7.67
  7.40
  7.16
  6.94
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
Revenue, $m
  0
  26,581
  29,943
  33,502
  37,253
  41,193
  45,320
  49,633
  54,133
  58,820
  63,698
  68,771
  74,044
  79,524
  85,218
  91,136
  97,288
  103,684
  110,339
  117,263
  124,473
  131,983
  139,809
  147,970
  156,483
  165,368
  174,646
  184,337
  194,465
  205,054
  216,127
Variable operating expenses, $m
 
  23,970
  26,996
  30,199
  33,575
  37,122
  40,837
  44,719
  48,769
  52,988
  57,379
  61,900
  66,646
  71,578
  76,703
  82,030
  87,567
  93,325
  99,314
  105,547
  112,036
  118,795
  125,840
  133,185
  140,848
  148,845
  157,196
  165,919
  175,035
  184,565
  194,533
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  21,807
  23,970
  26,996
  30,199
  33,575
  37,122
  40,837
  44,719
  48,769
  52,988
  57,379
  61,900
  66,646
  71,578
  76,703
  82,030
  87,567
  93,325
  99,314
  105,547
  112,036
  118,795
  125,840
  133,185
  140,848
  148,845
  157,196
  165,919
  175,035
  184,565
  194,533
Operating income, $m
  1,612
  2,611
  2,947
  3,303
  3,677
  4,071
  4,483
  4,914
  5,364
  5,832
  6,320
  6,871
  7,398
  7,946
  8,515
  9,106
  9,721
  10,360
  11,025
  11,717
  12,437
  13,187
  13,969
  14,785
  15,635
  16,523
  17,450
  18,418
  19,430
  20,488
  21,595
EBITDA, $m
  1,811
  2,830
  3,189
  3,567
  3,967
  4,386
  4,826
  5,285
  5,764
  6,264
  6,783
  7,323
  7,885
  8,468
  9,075
  9,705
  10,360
  11,041
  11,749
  12,487
  13,255
  14,054
  14,888
  15,757
  16,663
  17,609
  18,597
  19,629
  20,708
  21,835
  23,015
Interest expense (income), $m
  134
  145
  302
  470
  648
  836
  1,033
  1,239
  1,455
  1,680
  1,914
  2,158
  2,412
  2,676
  2,950
  3,234
  3,530
  3,838
  4,158
  4,490
  4,837
  5,197
  5,573
  5,964
  6,372
  6,798
  7,242
  7,706
  8,191
  8,697
  9,226
Earnings before tax, $m
  1,471
  2,466
  2,645
  2,832
  3,029
  3,235
  3,450
  3,675
  3,909
  4,152
  4,405
  4,713
  4,986
  5,270
  5,565
  5,872
  6,191
  6,522
  6,867
  7,226
  7,600
  7,990
  8,397
  8,821
  9,263
  9,725
  10,208
  10,713
  11,240
  11,791
  12,368
Tax expense, $m
  414
  666
  714
  765
  818
  873
  932
  992
  1,055
  1,121
  1,189
  1,273
  1,346
  1,423
  1,503
  1,585
  1,671
  1,761
  1,854
  1,951
  2,052
  2,157
  2,267
  2,382
  2,501
  2,626
  2,756
  2,892
  3,035
  3,184
  3,339
Net income, $m
  1,031
  1,800
  1,931
  2,067
  2,211
  2,362
  2,519
  2,683
  2,854
  3,031
  3,216
  3,441
  3,640
  3,847
  4,063
  4,286
  4,519
  4,761
  5,013
  5,275
  5,548
  5,833
  6,130
  6,439
  6,762
  7,100
  7,452
  7,820
  8,205
  8,608
  9,029

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  33,428
  37,918
  42,715
  47,791
  53,142
  58,763
  64,651
  70,804
  77,222
  83,909
  90,868
  98,104
  105,626
  113,443
  121,566
  130,009
  138,784
  147,909
  157,402
  167,280
  177,565
  188,278
  199,443
  211,084
  223,229
  235,904
  249,138
  262,964
  277,411
  292,516
  308,313
Adjusted assets (=assets-cash), $m
  33,428
  37,918
  42,715
  47,791
  53,142
  58,763
  64,651
  70,804
  77,222
  83,909
  90,868
  98,104
  105,626
  113,443
  121,566
  130,009
  138,784
  147,909
  157,402
  167,280
  177,565
  188,278
  199,443
  211,084
  223,229
  235,904
  249,138
  262,964
  277,411
  292,516
  308,313
Revenue / Adjusted assets
  0.000
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
Average production assets, $m
  1,572
  1,781
  2,006
  2,245
  2,496
  2,760
  3,036
  3,325
  3,627
  3,941
  4,268
  4,608
  4,961
  5,328
  5,710
  6,106
  6,518
  6,947
  7,393
  7,857
  8,340
  8,843
  9,367
  9,914
  10,484
  11,080
  11,701
  12,351
  13,029
  13,739
  14,481
Working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total debt, $m
  3,148
  6,571
  10,226
  14,094
  18,171
  22,454
  26,941
  31,629
  36,520
  41,616
  46,918
  52,432
  58,164
  64,121
  70,311
  76,744
  83,431
  90,384
  97,617
  105,144
  112,981
  121,145
  129,652
  138,523
  147,777
  157,436
  167,520
  178,055
  189,065
  200,574
  212,612
Total liabilities, $m
  25,470
  28,894
  32,549
  36,417
  40,494
  44,777
  49,264
  53,952
  58,843
  63,939
  69,241
  74,755
  80,487
  86,444
  92,634
  99,067
  105,754
  112,707
  119,940
  127,467
  135,304
  143,468
  151,975
  160,846
  170,100
  179,759
  189,843
  200,378
  211,388
  222,897
  234,935
Total equity, $m
  7,957
  9,024
  10,166
  11,374
  12,648
  13,986
  15,387
  16,851
  18,379
  19,970
  21,626
  23,349
  25,139
  26,999
  28,933
  30,942
  33,031
  35,202
  37,462
  39,813
  42,260
  44,810
  47,467
  50,238
  53,128
  56,145
  59,295
  62,585
  66,024
  69,619
  73,378
Total liabilities and equity, $m
  33,427
  37,918
  42,715
  47,791
  53,142
  58,763
  64,651
  70,803
  77,222
  83,909
  90,867
  98,104
  105,626
  113,443
  121,567
  130,009
  138,785
  147,909
  157,402
  167,280
  177,564
  188,278
  199,442
  211,084
  223,228
  235,904
  249,138
  262,963
  277,412
  292,516
  308,313
Debt-to-equity ratio
  0.396
  0.730
  1.010
  1.240
  1.440
  1.610
  1.750
  1.880
  1.990
  2.080
  2.170
  2.250
  2.310
  2.370
  2.430
  2.480
  2.530
  2.570
  2.610
  2.640
  2.670
  2.700
  2.730
  2.760
  2.780
  2.800
  2.830
  2.840
  2.860
  2.880
  2.900
Adjusted equity ratio
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238
  0.238

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,031
  1,800
  1,931
  2,067
  2,211
  2,362
  2,519
  2,683
  2,854
  3,031
  3,216
  3,441
  3,640
  3,847
  4,063
  4,286
  4,519
  4,761
  5,013
  5,275
  5,548
  5,833
  6,130
  6,439
  6,762
  7,100
  7,452
  7,820
  8,205
  8,608
  9,029
Depreciation, amort., depletion, $m
  199
  219
  242
  265
  290
  315
  343
  371
  400
  431
  463
  452
  486
  522
  560
  599
  639
  681
  725
  770
  818
  867
  918
  972
  1,028
  1,086
  1,147
  1,211
  1,277
  1,347
  1,420
Funds from operations, $m
  2,671
  2,020
  2,172
  2,332
  2,501
  2,677
  2,861
  3,054
  3,254
  3,462
  3,679
  3,892
  4,126
  4,370
  4,622
  4,885
  5,158
  5,442
  5,738
  6,045
  6,366
  6,700
  7,048
  7,411
  7,790
  8,186
  8,599
  9,031
  9,483
  9,955
  10,449
Change in working capital, $m
  -31
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from operations, $m
  2,702
  2,058
  2,172
  2,332
  2,501
  2,677
  2,861
  3,054
  3,254
  3,462
  3,679
  3,892
  4,126
  4,370
  4,622
  4,885
  5,158
  5,442
  5,738
  6,045
  6,366
  6,700
  7,048
  7,411
  7,790
  8,186
  8,599
  9,031
  9,483
  9,955
  10,449
Maintenance CAPEX, $m
  0
  -154
  -175
  -197
  -220
  -245
  -271
  -298
  -326
  -356
  -386
  -418
  -452
  -486
  -522
  -560
  -599
  -639
  -681
  -725
  -770
  -818
  -867
  -918
  -972
  -1,028
  -1,086
  -1,147
  -1,211
  -1,277
  -1,347
New CAPEX, $m
  -215
  -209
  -225
  -238
  -251
  -264
  -277
  -289
  -301
  -314
  -327
  -340
  -353
  -367
  -382
  -397
  -412
  -429
  -446
  -464
  -483
  -503
  -524
  -547
  -570
  -595
  -622
  -649
  -679
  -709
  -742
Cash from investing activities, $m
  -2,465
  -363
  -400
  -435
  -471
  -509
  -548
  -587
  -627
  -670
  -713
  -758
  -805
  -853
  -904
  -957
  -1,011
  -1,068
  -1,127
  -1,189
  -1,253
  -1,321
  -1,391
  -1,465
  -1,542
  -1,623
  -1,708
  -1,796
  -1,890
  -1,986
  -2,089
Free cash flow, $m
  237
  1,695
  1,772
  1,897
  2,029
  2,168
  2,314
  2,467
  2,627
  2,793
  2,966
  3,134
  3,321
  3,516
  3,718
  3,929
  4,147
  4,375
  4,611
  4,857
  5,113
  5,379
  5,657
  5,946
  6,248
  6,563
  6,891
  7,234
  7,593
  7,968
  8,360
Issuance/(repayment) of debt, $m
  452
  3,423
  3,655
  3,868
  4,077
  4,283
  4,486
  4,689
  4,891
  5,095
  5,302
  5,514
  5,732
  5,957
  6,190
  6,433
  6,687
  6,953
  7,233
  7,527
  7,837
  8,163
  8,508
  8,871
  9,254
  9,658
  10,085
  10,535
  11,009
  11,510
  12,037
Issuance/(repurchase) of shares, $m
  -193
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  269
  3,423
  3,655
  3,868
  4,077
  4,283
  4,486
  4,689
  4,891
  5,095
  5,302
  5,514
  5,732
  5,957
  6,190
  6,433
  6,687
  6,953
  7,233
  7,527
  7,837
  8,163
  8,508
  8,871
  9,254
  9,658
  10,085
  10,535
  11,009
  11,510
  12,037
Total cash flow (excl. dividends), $m
  506
  5,117
  5,427
  5,766
  6,107
  6,451
  6,801
  7,156
  7,518
  7,888
  8,268
  8,648
  9,053
  9,473
  9,908
  10,362
  10,834
  11,328
  11,844
  12,384
  12,950
  13,542
  14,164
  14,817
  15,502
  16,221
  16,976
  17,769
  18,602
  19,478
  20,397
Retained Cash Flow (-), $m
  -668
  -1,067
  -1,142
  -1,208
  -1,274
  -1,338
  -1,401
  -1,464
  -1,528
  -1,591
  -1,656
  -1,722
  -1,790
  -1,860
  -1,933
  -2,009
  -2,089
  -2,172
  -2,259
  -2,351
  -2,448
  -2,550
  -2,657
  -2,771
  -2,890
  -3,017
  -3,150
  -3,290
  -3,439
  -3,595
  -3,760
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  4,050
  4,286
  4,557
  4,833
  5,114
  5,399
  5,691
  5,990
  6,297
  6,612
  6,926
  7,263
  7,612
  7,975
  8,352
  8,746
  9,156
  9,585
  10,033
  10,502
  10,993
  11,507
  12,046
  12,611
  13,204
  13,826
  14,479
  15,164
  15,883
  16,637
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  3,883
  3,923
  3,966
  3,980
  3,964
  3,919
  3,845
  3,744
  3,617
  3,467
  3,289
  3,099
  2,894
  2,677
  2,452
  2,222
  1,992
  1,765
  1,545
  1,334
  1,137
  955
  790
  642
  514
  403
  311
  235
  173
  125
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

The Progressive Corporation, through its subsidiaries, provides personal and commercial property-casualty insurance, and other specialty property-casualty insurance and related services primarily in the United States. Its Personal Lines segment writes insurance for personal autos, and recreational and other vehicles. This segment’s products include personal auto insurance; and special lines products, including insurance for motorcycles, ATVs, RVs, mobile homes, watercraft, and snowmobiles. The company’s Commercial Lines segment provides primary liability, physical damage, and other auto-related insurance for autos, vans, and pick-up trucks, and dump trucks used by small businesses; tractors, trailers, and straight trucks primarily used by regional general freight and expeditor-type businesses, and non-fleet long-haul operators; dump trucks, log trucks, and garbage trucks used by dirt, sand and gravel, logging, and coal-type businesses; tow trucks and wreckers used in towing services and gas/service station businesses; and non-fleet taxis, black-car services, and airport taxis. Its Property segment provides personal and commercial property insurance, personal umbrella insurance, and primary and excess flood insurance products for homeowners, other property owners, and renters. The company also offers policy issuance and claims adjusting services for the commercial auto insurance procedures/plans; home, condominium, and renters insurance; and general liability and business owners policies, and workers’ compensation insurance, as well as sells personal auto physical damage and property damage liability insurance in Australia. The Progressive Corporation sells its products and services through independent insurance agencies, as well as directly on the Internet, mobile devices, and over the phone. The company was founded in 1937 and is headquartered in Mayfield Village, Ohio.

FINANCIAL RATIOS  of  Progressive Corp (PGR)

Valuation Ratios
P/E Ratio 22.6
Price to Sales 1
Price to Book 2.9
Price to Tangible Book
Price to Cash Flow 8.6
Price to Free Cash Flow 9.4
Growth Rates
Sales Growth Rate 12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 64.1%
Cap. Spend. - 3 Yr. Gr. Rate 9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 39.6%
Total Debt to Equity 39.6%
Interest Coverage 12
Management Effectiveness
Return On Assets 3.6%
Ret/ On Assets - 3 Yr. Avg. 4.6%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 12.7%
Return On Equity 13.5%
Return On Equity - 3 Yr. Avg. 17%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 7.7%
EBITDA Margin - 3 Yr. Avg. 9.7%
Operating Margin 6.9%
Oper. Margin - 3 Yr. Avg. 9.1%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 8.4%
Net Profit Margin 4.4%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 28.1%
Eff/ Tax Rate - 3 Yr. Avg. 31%
Payout Ratio 50.3%

PGR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PGR stock intrinsic value calculation we used $23419 million for the last fiscal year's total revenue generated by Progressive Corp. The default revenue input number comes from 2016 income statement of Progressive Corp. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PGR stock valuation model: a) initial revenue growth rate of 13.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for PGR is calculated based on our internal credit rating of Progressive Corp, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Progressive Corp.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PGR stock the variable cost ratio is equal to 90.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for PGR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.6% for Progressive Corp.

Corporate tax rate of 27% is the nominal tax rate for Progressive Corp. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PGR stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PGR are equal to 6.7%.

Life of production assets of 10.2 years is the average useful life of capital assets used in Progressive Corp operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PGR is equal to 0%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $7957 million for Progressive Corp - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 576.314 million for Progressive Corp is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Progressive Corp at the current share price and the inputted number of shares is $23.1 billion.


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COMPANY NEWS

▶ Progressive misses 1Q profit forecasts   [10:04AM  Associated Press]
▶ Progressive Reports March 2017 Results   [08:32AM  GlobeNewswire]
▶ Auto-insurance underwriting suffers worst year in past 15   [Mar-28-17 05:51PM  at MarketWatch]
▶ 'Hey Google - Let me Talk to Progressive'   [11:00AM  PR Newswire]
▶ [$$] Progressive Stock Can Drive Higher   [07:10AM  at Barrons.com]
▶ Progressive Reports February 2017 Results   [08:40AM  GlobeNewswire]
▶ Insuring Your Portfolio With Insurance Stocks   [Mar-08-17 11:00AM  at Insider Monkey]
▶ Progressive Announces Investor Relations Conference Call   [Feb-23-17 01:00PM  GlobeNewswire]
▶ Progressive Reports January 2017 Results   [08:32AM  GlobeNewswire]
▶ Progressive Gains Ground on Higher Premiums   [Jan-25-17 06:29PM  at Motley Fool]
Stock chart of PGR Financial statements of PGR
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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