Progressive (PGR)

Total return at 5 years: 4.2%/year = 4.1% appreciation + 0.2% dividend. The target price ($270) is ex-dividend; the $2 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($221) and the other below.

Today — expensive, no margin of safety: at $221 trades ~1.2% above its value discounted to today (~$219); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — En valor: the target price ($270) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$136.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($221) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-14.4%/year) than we project (3.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$5.4 bn of owner earnings in year 5 (vs ~$13.9 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 is the TTM as of June 30, 2026 (net income US$11.70bn, reported ROE 34.7%). That ROE is cyclically elevated: the companywide combined ratio, which was coming off historical lows (86.2% for the half through June 2025), has already started rising (87.3% for the half through June 2026; 90.0 in the month of June 2026 alone, 3.4 points worse than a year earlier), moving toward the company's own target of 96 or below. The base case models that adjustment: net income steps down in year 1 (the underwriting margin finishes normalizing) and then resumes moderate growth on the back of premiums (YTD growth of 6% companywide, with Direct +9% and Property -2%) and a larger investment portfolio (US$97.2bn at a 4.2% book yield). Progressive's dividend has two components: a fixed quarterly base (US$0.10/quarter) and an annual variable dividend declared in December based on underwriting profit above the limit of the 96 target — which is why the TTM figure (US$13.90/share) is almost entirely the December 2025 variable payment for fiscal year 2025, paid in January 2026. As the margin normalizes, that variable component contracts in year 1 before growing again with earnings. The revealed net buyback rate (diluted shares falling from 588.1M in Dec-2025 to 584.2M in Jun-2026, ~1.2%/year annualized) is projected the same across all three scenarios, as the method requires. ⚠️ The base normalizes the underwriting cycle, which is what the method requires for a property and casualty insurer. The year-0 TTM sits at the peak: net income went from US$0.72 billion in 2022 to US$11.31 billion in 2025, a sixteen-fold swing between trough and peak, with a combined ratio near 87 against the 96 target the company itself publishes. Extrapolating that level for five years would be the compounded optimism the method forbids. The base case therefore runs on a combined ratio of 92 —the average Progressive actually realizes across the cycle, better than its stated target because it underwrites better than the sector— applied to premiums earned that do grow (US$81.7 billion in 2025, decelerating from 18% to 6% per year), plus investment income. The adverse scenario uses the stated 96 target and the favorable one an 89. The dividend follows earnings and not the other way round: at Progressive it is a fixed quarterly base plus a variable amount tied to underwriting profit above target, so a normal underwriting year pays considerably less than the record US$13.90 per share declared in 2025 — which is why the record carries the normalized year-1 dividend as the current one rather than the peak.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $270 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $221, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $270 in 5 years plus $2 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $219. Against the current market price ($221), the margin of safety is -1.2% (trades above the maximum → a premium is paid) and the total return at that price would be 4.2% annually.

• Entry multiple. ~11x TTM earnings, below the midpoint of the insurer band (11-15x), reflecting that the market already discounts the combined-ratio normalization.
• Cyclicality of base earnings. TTM earnings sit at a cyclically high point of the underwriting margin; the base case already builds in a step down in year 1 to avoid extrapolating the peak.
• Variable dividend. A meaningful component of total return, but with structural volatility: it contracts as the underwriting margin normalizes.

• Cash generation. TTM operating cash flow of US$16.3bn, strong and growing, though inflated by the reserve float typical of an insurer.
• Return on capital. TTM ROE of 34.7%, well above the 10% bar, though cyclically elevated and in the process of normalizing toward a lower sustainable level (projected high-teens by year 5).
• Reinvestment runway. Double-digit premium growth in personal auto direct and a still-small position in personal property (3.5% of volume) leave organic growth runway with no need for acquisitions.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The three indicators tell the same story from different angles: volume keeps growing strongly (policies +7%, premiums +6% year over year) while the underwriting margin, which was coming off cyclical lows, is starting to normalize (combined ratio +1.1 points for the half, +3.4 points in the month of June alone). Only two periods are available in the cited earnings release (June 2025 and June 2026); no longer quarterly series is fabricated beyond what the filing provides.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Premium growth. Companywide premiums +6% year over year for the half through June 2026, decelerating in an orderly fashion from the 2023-2024 peak.
• Channel mix. The lower structural-cost direct channel keeps gaining share (57% of personal auto volume) versus the agency channel.
• Commercial Lines. Slower growth (+3% YTD) following the partial exit from the transportation network business, a deliberate mix adjustment rather than a sign of competitive weakness.

• Business recurrence. Auto insurance is a recurring, mandatory purchase in most states; retention improves with auto-and-property bundled auto and home policies.
• Product differentiation. Usage-based rating (Snapshot) and tools like Name Your Price differentiate the buying experience from traditional competitors.
• Pricing power. The company actively raises and lowers rates according to the claims cycle (raised commercial auto 9% in 2025, lowered personal auto less than 1%), evidence that it sets price rather than taking it from the market.
• Behavior in recessions. Auto insurance is a practically mandatory purchase; demand is resilient in recessions, though investment income is sensitive to capital markets.

• ✓Underwriting profitability (combined ratio)Combined ratio 87.3%
• ✓Reserve adequacy (development)Favorable +42.8% pts
• ✓Catastrophe exposure2.4% pts of the combined ratio
• ✓Book value compounding+12%/yr · core ROE 35%
• ✓Float return (investment income)$3.8 bn on $97.2 bn of float

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt-to-capital ratio of 19.6%, conservative for an insurer of this scale.
• Investment portfolio quality. Average credit quality of AA- and short duration (3.5 years), limiting interest rate risk on equity.
• Reserve development. Favorable reserve development adjustment of US$428M for the half through June 2026 (net reserve release), a sign of conservative reserving in prior fiscal years.

• Capital allocation. Variable dividend tied directly to underwriting profit above the combined-ratio target, plus active buybacks; an uncommon structure that aligns the payout with operating discipline.
• Alignment. The CEO has more than 30 years at the company; executive share holdings detail is not available in this run (proxy unprocessed).
• Candor. The release explicitly states it does not manage the business to meet short-term earnings expectations, and details the impact of one-time actuarial adjustments (property methodology) rather than burying them in the consolidated result.

• The entry multiple (~11x TTM earnings) is lower than the midpoint of the insurer band because the market is already pricing in the normalization of the combined ratio from its cyclically favorable level.
• There is no identifiable single event of forced selling or short-term expectations miss in the release: the price largely reflects the market's own recognition that TTM earnings are not sustainable at their current level.

The search did not find a clear source of missing buyers or motivated sellers: Progressive is a large-cap stock (~US$129bn market value), heavily followed by analysts, with no restructuring event and no media noise unrelated to the business. The relatively low multiple within the insurer band appears to reflect, fairly accurately, that the market already anticipates the combined-ratio normalization the company's own June 2026 release shows underway (90.0 versus 86.6 a year earlier). This is consistent with a reasonably efficient market pricing in the underwriting cycle, rather than with a gap between perception and reality: the thesis's margin of safety lies more in the quality of the business (wide moat, underwriting discipline, sustained premium growth) than in a conviction that the market is wrong about today's price.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -7%/year (-31% total): the margin of safety protects the downside. The bull (+12%/year, +78% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Margin normalization. The combined ratio has already been rising (90.0 in June 2026 versus 86.6 a year earlier); the pace of that normalization is the thesis's main risk.
• Catastrophe concentration. The property segment has policies concentrated in states exposed to hurricanes and hail, with a YTD catastrophe ratio of 13.0% within property.
• Reinsurance. Dependence on reinsurance arrangements with retentions of US$200M (US$75M in Florida); the cost and availability of those contracts could deteriorate.
• Rating regulation. Regulatory and legislative pressure on rating factors (credit, occupation) could reduce the effectiveness of the company's pricing model.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROE 35% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a PEG of 3.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -14% vs our 4%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +12%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -14%, within what we project (4%) — the story squares with the numbers.