Loews Pinned at Neutral
We have retained our Neutral recommendation on Loews Corporation (L) based on its soft first-quarter 2013 results, wherein the company missed on both counts.
Why Reiterate?
Loews’ first-quarter operating earnings of 81 cents per share lagged the Zacks Consensus Estimate of 84 cents by 3.6% and decreased 14.7% year over year. Lower parent company investment income as a result of weak performance in the trading portfolio induced the poor numbers. Top line also slumped due to lower net investment income and contract drilling revenues.
In the last reported quarter, Loews missed expectations for the second time in a row.
Diamond Offshore (DO) continued to post lower earnings. The first-quarter results suffered due to an increase in planned downtime for special surveys. We expect that the upcoming quarters will likely suffer due to the planned downtime for special surveys, as there will be more number of surveys in 2013.
Moreover, contracted backlog in 2013 will restrict Diamond Offshore to capitalize on strong demand in ultra-deepwater and deepwater markets in the near term.
HighMount, another Loews subsidiary, continued to generate lower revenues and income due to lower sales volume, stemming from lower drilling activity as well as a decline in natural gas prices. Nevertheless, to weather the declining natural gas price environment, HighMount is focusing its drilling activities on sites that could result in higher oil production. In addition, its purchase of working interest in oil and gas properties located in Okla. will help diversify its reserves.
Counting on the positives, Loews Hotels remain focused on adding more hotels to its portfolio in order to take the count from 18 to more than 30 in the next two to four years, besides tripling its net income by 2015.
Moreover, Loews’ joint venture with Boardwalk Pipeline Partners helped it to enter the natural gas liquids business and capitalize on the opportunities offered by the market. Natural gas is usually an attractive choice because of its relative fuel efficiency, low emissions, quick construction timelines and low capital costs and is deemed to become a major source of power generation in the future.
Loews currently carries Zacks Rank #4 (Sell).
Other Stocks to Consider
While we prefer to remain cautious on Loews, other multi-line insurers Assured Guaranty Ltd. (AGO) and Eastern Insurance Holdings, Inc. (EIHI) carry a favorable Zacks Rank #1(Buy) and appear impressive.
Read the Full Research Report on L
Read the Full Research Report on DO
Read the Full Research Report on AGO
Read the Full Research Report on EIHI
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