We retain our Neutral recommendation on Loews Corporation (L) following its mixed third-quarter performance.
Why the Reiteration?
Loews’ third-quarter 2013 operating net income of 83 cents per share outperformed the Zacks Consensus Estimate by 7.8% but missed the year-ago earnings by 3.5%.
The year-over-year decline was largely attributable to decrease in earnings at Diamond Offshore Drilling Inc. (DO) and lower investment income at the parent company. Nonetheless, higher earnings at CNA Financial Corp. (CNA) limited the downside. An increase in insurance premiums as well as contract drilling revenues fueled the top-line improvement in the quarter.
Following the mixed quarterly results, 2 estimates were pulled down over the 30 day–period, dragging the Zacks Consensus Estimate for 2013 to $2.75 by 3.5%. For 2014, one estimate moved up while one moved south over the same time frame, taking the Zacks Consensus Estimate to $3.65, up 0.6%.
Nevertheless, Loews remains focused on strengthening its smallest segment – the hotel business. With capital at its disposal, the company intends to double its hotel count besides tripling its net income by 2015.
Loews’ recent joint venture with Boardwalk Pipeline Partners is part of its plans to diversify its offerings. The merger marks Loews’ foray into the natural gas liquids business to capitalize on the opportunities offered by the market.
On the other hand, weighing on the positives are continued soft results at HighMount and Diamond Offshore. In addition, to weather the declining natural gas price environment, HighMount is focusing its drilling activities at sites like the Mississippian line in Oklahoma, and the Wolfcamp strata in Sonora, Texas in particular, that could result in higher oil production.
However, Diamond Offshore is expected to suffer planned downtime for special surveys in the fourth quarter. This is because the rigs are subject to surveys every five years. 2013, being the fifth year, experienced more number of surveys.
Nevertheless, Loews boasts of a strong balance sheet with low leverage and adequate cash, and also scores strongly with rating agencies.
Loews currently carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Though we prefer to remain cautious on Loews, Kemper Corp. (KMPR) with a favorable Zacks Rank #1 (Strong Buy) is worth taking a look at.
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