Hold Progressive, Pre-Earnings

We anticipate The Progressive Corporation (PGR) will release its 2Q08 results the week of July 14, 2008. While 1Q08 results were a penny ahead of our expectations, results for the month of May were adversely affected by a reduction in net premiums written and higher investment losses.

Historically, PGR has been considered as one of the best run and most profitable personal lines insurers in the industry, demonstrated by stronger premium growth and substantially higher ROE than most of its peers. Though we suspect 2Q08 results could be a penny or two better than our estimate, competition continues to intensify premium and earnings growth has slowed (a trend that we expect to continue). Therefore, we reiterate 2008 and 2009 earnings expectations, as well as our Hold recommendation on the shares of PGR.

We maintain our FY08 and FY09 EPS targets of $1.35 per share. At the current price, the shares of Progressive trade at 2.87x its 1Q08 book value of $7.01 per share. The company's multiple is currently 120 basis points above its peer group median (up from 99 basis points as of our last report, matching the 120 basis points of seven quarters ago), reflecting its long track record of superior profitability.

Based on an industry wide deceleration in personal line pricing, we think earnings growth of most of the participants may moderate and valuation multiples may through 2008 and into 2009 potentially. Depending on how well it will execute its strategy, PGR's upside is limited relative to its downside risk. At best, our new six-month price target of $21.50 per share (up from $19.05 per share) incorporates the current multiple of 2.7x our estimated book value of $8.00 per share as of December 31, 2008.

Hold-Rated EnCana Target Upped

We are maintaining our Hold rating on EnCana Corp. (ECA) shares ahead of second-quarter results, while raising our estimates and price target. Recently, EnCana added significant acreage in Haynesville Shale and the Horn River Shale, two of the most promising shale plays in North America.

These and other early-stage plays have the potential to meaningfully add to the company's strong portfolio of natural gas assets. We also think that EnCana's recent proposal to split into two entities will enhance shareholder value. However, we believe these positives are already reflected in current valuation, especially following the stock's recent strong run up.

On June 25, EnCana announced the purchase of 89,500 acres in northwestern Louisiana. On June 16, EnCana said that it had accumulated a total of 325,000 net acres of natural gas and oil leaseholds in the Haynesville Shale in Louisiana and Texas. The company reported better-than-expected first-quarter 2008 recurring earnings of $1.39 per diluted share.

EnCana's resource plays continue to provide excellent performance. During the most recent quarter, the company's natural gas production was up 10% to 3.7 Bcf/d, driven by growth in the key resource plays.

This strongly positions EnCana to achieve its full-year guidance of 3.8 Bcf/d.