The Progressive CorporationPGRNYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $618.10 per share(market-calibrated)

+189.7%

Upside to Fair Value

Current

$213.35

Pure Model

$679.89

Fair Value

$618.10

Bull Case

$801.74

Bear Case

$543.27

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $679.89.

What's Driving This Ratingfor PGR

✓

CapEx already efficient

CapEx at 0.27% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 10.12% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $29.9B (24.25% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 12.26% in Year 1 to 2.50% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $846.55/share (31.0x terminal FCF) while exit multiple gives $513.22/share (15.9x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 75.37% indicates efficient cash generation. FCF reaches $22.8B by Year 10 (18.52% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.29

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.80%

Cost of Debt

Pre-tax Cost of Debt5.00%

Tax Rate20.82%

After-tax Cost of Debt3.96%

Equity Weight (E/V)100.00%

Debt Weight (D/V)0.00%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (100.00% × 5.80%) + (0.00% × 3.96%)

= 5.80%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$89.7B	$102.1B	$109.0B	$114.5B	$123.3B
EBIT	$9.1B	$10.3B	$18.1B	$23.7B	$29.9B
Tax	$1.9B	$2.2B	$3.8B	$4.9B	$6.2B
NOPAT	$7.2B	$8.2B	$14.3B	$18.8B	$23.7B
+ Depreciation	$282M	$321M	$343M	$361M	$388M
- Capex	$241M	$274M	$293M	$307M	$331M
- Δ NWC	$2.9B	$1.7B	$798M	$838M	$903M
Free Cash Flow	$4.3B	$6.6B	$13.5B	$18.0B	$22.8B
Discount Factor	0.945	0.844	0.754	0.674	0.569
Present Value	$4.1B	$5.5B	$10.2B	$12.1B	$13.0B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$22.8B

Terminal Growth Rate2.50%

WACC5.80%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$708.3B

PV of Terminal Value$402.9B

Exit Multiple Method

Year 10 EBITDA$30.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$363.6B

PV of Terminal Value$206.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$95.1B

PV of Terminal Value$402.9B

Enterprise Value$497.9B

(-) Net Debt--

Equity Value$497.9B

Shares Outstanding588M

Price per Share$846.55

Exit Multiple Method

PV of Projected FCFs$95.1B

PV of Terminal Value$206.8B

Enterprise Value$301.9B

(-) Net Debt--

Equity Value$301.9B

Shares Outstanding588M

Price per Share$513.22

Pure Model Fair Value

$679.89

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
3.81%	$984.31	$1,058.52	$1,014.94	$973.40	$933.80
4.80%	$738.12	$806.76	$905.17	$973.40	$933.80
5.80%	$597.77	$633.43	$679.89	$742.90	$833.25
6.80%	$504.46	$525.52	$551.46	$584.23	$626.91
7.80%	$436.56	$450.04	$466.07	$485.43	$509.30

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$543.27

154.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.36

Base Case

$679.89

218.7% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.29

Bull Case

$801.74

275.8% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 0.30

Key Assumptions & Drivers• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth12.26%

Year 3 Revenue Growth5.79%

Year 5 Revenue Growth2.50%

Year 7 Revenue Growth2.50%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin10.12%

Terminal EBIT Margin28.00%

Tax Rate20.82%

Historical Capex / Rev0.27%

NWC / Revenue30.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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