We are retaining our Neutral rating on Loews Corporation (L), as the company’s performance was weighed down by lower favorable net prior year development at CNA Financial Corporation coupled with higher catastrophe (CAT) losses. However, higher earnings at Diamond Offshore reflecting an increase in the utilization of high specification floaters somewhat dwarfed the negative impacts.
Loews Corporation reported second-quarter 2011 adjusted net income of 59 cents per share, lagging the Zacks Consensus Estimate by 16 cents and the year-ago earnings by 28 cents.
Counting on the positives, CNA Financial Corporation’s (CNA) property and casualty operation continues to deliver solid performance registering net written premium growth of more than 5%. New business and higher retention aided CNA to post solid results at its specialty and commercial segments. Also, CNA’s merger with CNA Surety, completed in June this year, will help it to expand its Specialty franchise.
Boardwalk Pipeline Partners LP (BWP), another subsidiary remains focused on diversifying its products and services as well as strengthening its traditional pipeline business. Also, it boasts enhancing the unitholders' value by hiking cash distribution every quarter.
Another subsidiary of Loews – Diamond Offshore Drilling Inc. (DO) posted solid earnings after many quarters. Increase in average utilization of high-spec floaters fueled higher earnings at Diamond Offshore. With these rigs commencing operations in 2013 and 2014, a combined revenue of approximately $1.8 billion is expected. Further, Diamond Offshore inked ten new contracts that are expected to produce over $1 billion of revenue.
Loews maintains a strong and liquid balance sheet. Also, it has traditionally indulged in buying back aggressively. During the second quarter, Loews bought back 5.5 million shares for $228 million. Subsequent to the second quarter through July, the company bought back another 1.0 million shares for $41 million.
On the flip side, CNA has substantial exposure to catastrophe losses. Losses in the second quarter totaled $100 million, a substantial deterioration of $48 million in the year-ago quarter. Also, after several quarters of solid underwriting results, earnings started to face pressure as cost and market challenges were experienced within the industry.
The Zacks Consensus Estimate for third-quarter 2011 is 73 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $3.17 per share and $3.09 per share.
The quantitative Zacks #4 Rank (short term Sell rating) on the stock indicates downward 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, Diamond Offshore Drilling Inc., Boardwalk Pipeline Partners LP, Loews Hotels Holding Corporation and High Mount Exploration & Production LLC.
BOARDWALK PIPLN (BWP): Free Stock Analysis Report
CNA FINL CORP (CNA): Free Stock Analysis Report
DIAMOND OFFSHOR (DO): Free Stock Analysis Report
LOEWS CORP (L): Free Stock Analysis Report
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