DCF Studio

    PGR · NYQ · Financial Services

    The Progressive Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 598.69

    Market price

    USD 213.48

    Implied upside

    +180.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.44% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.5%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 598.69+180.4%
    Exit multiple
    USD 428.97+100.9%
    Market price
    USD 213.48

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn19bn38bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 106.0bnUSD 128.1bnUSD 154.9bnUSD 187.3bnUSD 226.4bn+20.9%
    EBITUSD 10.7bnUSD 12.9bnUSD 15.6bnUSD 18.8bnUSD 22.8bn+20.9%
    NOPATUSD 8.4bnUSD 10.2bnUSD 12.4bnUSD 14.9bnUSD 18.1bn+20.9%
    Add depreciation & amortisationUSD 479.5mUSD 579.8mUSD 701.0mUSD 847.5mUSD 1.0bn+20.9%
    Less capital expenditureUSD -1.1bnUSD -1.3bnUSD -1.5bnUSD -1.9bnUSD -2.3bn+20.9%
    Less increase in working capitalUSD 9.7bnUSD 11.7bnUSD 14.2bnUSD 17.1bnUSD 20.7bn-20.9%
    Free cashflow to firmUSD 17.6bnUSD 21.2bnUSD 25.7bnUSD 31.0bnUSD 37.5bn+20.9%
    Discount factor0.96420.89640.83330.77470.7202-
    Present valueUSD 16.9bnUSD 19.0bnUSD 21.4bnUSD 24.0bnUSD 27.0bn+12.4%
    Present Value Of The ForecastUSD 108.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.504Reported 0.259, pulled toward 1.0 (Blume)
    Cost of equity7.77%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 124.1bn94.7% of capital
    Total debtUSD 6.9bn5.3% of capital, book value as a proxy
    Tax rate20.7%Effective, capped at statutory
    WACC7.57%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 598.69

    68% of EV

    Forecast FCFF, final year
    USD 37.5bn
    Capex at depreciation, working capital in reinvestment
    USD 18.1bn
    Less reinvestment at g/ROIC (12.3% of NOPAT)
    USD -2.2bn
    Capitalised
    USD 15.8bn
    ROIC (reported)
    20.4%
    Terminal value, undiscounted
    USD 320.4bn
    Terminal value, discounted
    USD 230.7bn
    Enterprise value
    USD 339.1bn
    Less net debt
    USD -12.9bn
    Equity value
    USD 352.1bn

    Exit at 7.6x EBITDA

    Value per shareUSD 428.97

    55% of EV

    Terminal value, undiscounted
    USD 181.8bn
    Terminal value, discounted
    USD 130.9bn
    Enterprise value
    USD 239.3bn
    Less net debt
    USD -12.9bn
    Equity value
    USD 252.3bn

    Spread between methods: 33%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.57%772.28836.48921.421039.221213.72
    6.57%638.99675.53720.92778.88855.54
    7.57%548.98571.65598.69631.53672.31
    8.57%483.91498.81516.07536.34560.51
    9.57%434.54444.73456.28469.53484.87

    Outlined: this model. Green text: above today's price of 213.48. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year20.9%-0.6%-21.5pp
    EBIT margin10.1%2.0%-8.0pp
    Discount rate7.6%22.0%+14.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.