Progressive Corp. (NYSE:PGR) shares slumped Wednesday morning, extending declines from Tuesday for a two-day loss of around 8%. The decline followed an updated company filing with the SEC and a letter from its CEO, Tricia Griffith.
In the letter, Griffith discussed a repricing initiative, stating, "Considering our first quarter profitability results, and the fact that inflation has not abated, we are re-evaluating our rate plans and intend to be aggressive with raising rates over the remainder of the year."
Investors interpreted Griffith's comments as negative for margins at the insurer, but at least one analyst is pushing back against this view.
"PGR shares sold off on shorter-term margin concerns, but we believe this a fundamental misreading of what it means for the company," said Bank of America analysts.
Instead of selling the stock, the analysts think investors should buy Progressive when it is raising prices.
"The negative reaction to corrective pricing action is almost identical to how shares reacted to very similar news in May 2021. While PGR did underperform during the summer of 2021, the short thesis did not bear out with the fundamentals or longer-term stock performance. Progressive was able to procure the rate increases it desired, to repair its margins and to put itself on the path to historically significant growth. We believe Progressive is behaving in precisely the same manner as it did in 2016-2018 and 2021-2022."
Despite weakness in the stock, BofA raised its price target on Progressive from $188 to $197, while maintaining a Buy rating.
"As was the case in the prior pricing inflections, Progressive’s advantages in the auto insurance market leave it open to material market share gain and business growth. We do not believe the events of the past month have materially changed the company’s trajectory. With material upside to our price objective, we reiterate our Buy recommendation." concluded the analysts.