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Its the best of times for car insurersbut not for their stocks. That could make it a good time to buy shares of Progressive.

Stay-at-home orders have forced people to stay put, which means fewer cars on the roads, fewer accidents, and fewer claims to pay. As a result, profits are soaring for auto insurers such as Geico, State Farm, and Progressive (ticker: PGR). Times are so good, in fact, that they are giving premium rebates to policyholders.

Yet Progressives stock has risen just 1% in the past three months, to a recent $76.50, even as the S&P 500 has gained 10%. Investors apparently are concerned about what the companys earnings will look like once people start driving again, and theyre worried about longer-term issues, including the rise of autonomous vehicles.

They neednt worry: At 14 times next years expected earnings and a valuation below its historical average, Progressives stock reflects a lot of bad news. The shares underperformance has given investors an opportunity to buy a growth stock at a value price.

Americans love to drive, but the coronavirus pandemic has done the seemingly impossibleforced them off the road. Miles traveled on U.S. highways fell 19% year over year in March, and 40% in April. Less travel has meant fewer crashes, and fewer claims for Progressive to cover. The companys loss ratioclaims paid, divided by insurance premiums receivedwas almost 20 percentage points lower in April than a year earlier, falling to a historically low level, says Bill Wilt, an analyst at Gordon Haskett.

As a result, earnings estimates for Progressives current quarter have risen over the past few weeks, from roughly $1.30 a share to $1.80. But earnings are expected to fall 11% next year, to $5.45 a share, as more normal levels of driving resume. That raises an obvious question: Why pay up for earnings growth that isnt likely to last?

Other changes wrought by the coronavirus are more helpful to auto insurers. For one, the widespread launch of autonomous vehicles has been pushed back as car makers try to preserve cash. With self-driving technology costing billions of dollars to develop, the timeline for fully autonomous cars likely has been delayed by a couple of years.

We called a winter for pure autonomous driving ventures a year ago, New Street Research analyst Pierre Ferragu tells Barrons. The technological breakthrough didnt come. These businesses have made great progress, but see the goal post of a sustainable business model moving back for every step they take forward on the tech and performance front.

If a slower shift to autonomous driving means more drivers will stay behind the wheel, a societal shift could see their ranks grow in coming years. Millennials, now the largest generation in the U.S., arent getting licensed to drive at the same clip as prior generations. About 80% of U.S. residents 24 to 44 years old have a drivers license. Twenty years ago, that figure was closer to 90%. When people hit 40 and beyond, however, the vast majority in America find they need to drive. That could mean another 20 million licensed drivers, or 10% more customers for auto insurance.

Wall Street recognizes the opportunity, at least in part. Progressive is a relatively popular stock with securities analysts, and about 55% to 60% of those covering the company rate the shares the equivalent of Buy, similar to the 55% Buy ratio for stocks in the Dow Jones Industrial Average. The average analyst price target for Progressive shares is about $88, or 15% above current levels. But the opportunity could be greater than that.

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Progressive has a long history of solid business execution. The stock has returned 26% a year, on average, over the past five years. Its advance has been propelled by strong earnings growth; profits have compounded by 24% a year, on average, over that span.

Progressive has a couple of positive factors working in its favor, says Credit Suisse analyst Mike Zaremski. A lot of new business is being sold with telematics [which track driver data], or as a home and auto bundle.

These are more profitable policies than more conventional auto insurance, Zaremski says. Telematics policies are priced dynamically. For example, policyholders pay less if the tracking device shows that they dont speed or brake hard frequently, which it interprets as signs of potential recklessness. Zaremski rates Progressive stock the equivalent of Buy, with an $85 price target.

Progressive has been able to grow earnings at such an impressive pace in part because of its tight control over its combined ratio. Thats an industry term for operating costs plus insurance claims, divided by premiums. The lower the combined ratio, the more profitable the insurer. Progressive has always targeted a combined ratio of about 96% on new business, according to MKM Partners analyst Harry Fong. Once people begin to go back to work, we believe the company will begin to resume its longer-term [growth] trends, he writes. Meanwhile, reported earnings will remain elevated due to lower loss frequency.

Progressive executives didnt respond to Barrons requests for comment.

Fong expects Progressive to earn $5.20 a share next year. He rates the shares Buy, with a $90 price target, and believes they should trade for about 17 times earnings.

Progressive shares now change hands below their five-year average price/earnings multiple of 15, and the S&P 500s P/E of 20 times next years expected earnings. If investors start to believe that Progressive can grow earnings off a higher base, the multiple could return at least to its historical average. The stock could gain back some of the [recent P/E] discount, says Zaremski.

Assuming Progressive could earn as much as $6 a share in the future, and trade up to 17 times earnings, the shares could hit about $100 apiece. That would be about 30% above the recent priceproviding insurance against investor disappointment.

Write to Al Root at allen.root@dowjones.com

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Autonomous-Driving Delays and Other Reasons to Buy Progressive Stock - Barron's