We are retaining our Neutral rating on Loews Corporation (L), as the company’s performance was weighed down by Lower earnings at Diamond Offshore reflecting reduced day rates and utilization coupled with slightly lower earnings at CNA Financial Corporation.
Loews Corporation reported first-quarter 2011 adjusted net income of 89 cents per share, marginally the Zacks Consensus Estimate and lower from the year-ago earnings of 97 cents.
Counting on the positives, CNA Financial's agreement to transfer its legacy asbestos and pollution liabilities to National Indemnity, a subsidiary of Berkshire Hathaway (BRK.A, BRK.B) effectively eliminates CNA's asbestos and pollution reserve risk, as well as any reinsured dispute and credit risk, thereby reducing earnings volatility. Also, CNA’s merger with CNA Surety, which is expected to complete by the end of June this year, will help it to expand its Specialty franchise.
Loews maintains a strong and liquid balance sheet. Also, it has traditionally indulged in buying back aggressively. During the first quarter, Loews bought back 4.4 million shares for $187 million. Subsequent to the first quarter through April, the company bought back another 1.9 million shares for $82 million.
On the flip side, results at Diamond Offshore were adversely affected due to lower revenues from the decline in average day rates and lower utilization rates for jack ups. Diamond Offshore also reels under the impact of regulatory uncertainty despite the lifting of the drilling ban in the Gulf of Mexico, post-Macondo incident.
Hence, the company is relocating its rigs from this region to more lucrative international markets. Also, HighMount's equivalent sales volume declined to 15.5 billion cubic feet equivalent from 16.6 billion cubic feet equivalent in the year-ago quarter resulting from lowered drilling program for the Permian Basin.
The Zacks Consensus Estimate for second-quarter 2011 is 81 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $3.28 per share and $3.14 per share.
The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.
Headquartered in New York, Loews Corporation is a diversified holding company. The company’s principal subsidiaries are CNA Financial Corporation (CNA), Diamond Offshore Drilling Inc. (DO), Boardwalk Pipeline Partners LP (BWP), Loews Hotels Holding Corporation and High Mount Exploration & Production LLC.
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