We are downgrading Loews Corporation (L) to Underperform from Neutral on the back of weak fourth quarter results. Operating earnings in the fourth quarter lagged the Zacks Consensus Estimate owing to lower investment income from the limited partnership, increase in insurance reserves for its payout annuity business, lower earnings at Diamond Offshore and weak equity investments.
Loews’ subsidiary – Diamond Offshore (DO) – again posted lower earnings in the fourth quarter due to a higher number of planned downtime days for scheduled maintenance, survey, mobilization and upgrades. For 2012, Diamond Offshore estimates a year-over-year decline in contract drilling revenues due to downtime for rig mobilizations, regulatory surveys and shipyard projects.
Also, CNA Financial Corporation’s (CNA) exposure to catastrophe loss cost it $208 million, a substantial deterioration from $113 million in the year-ago quarter.
HighMount, the exploration and production business wing, generated weaker revenues and net income on lower sales volumes. The downside resulted from less drilling activity and low natural gas prices.
However, CNA’s property and casualty operation continues to deliver solid performance on the back of new business, continued rate improvement and higher retention. Besides, 2011 marked the fifth consecutive year of favorable prior-year property and casualty loss development. Also, CNA’s merger with CNA Surety, completed in June 2011, will help it to expand its Specialty franchise.
Loews maintains a strong balance sheet with minimal debt. It has aggressively bought back shares in the past. Loews spent $718 million in 2011 to buy back 18.2 million shares, with 0.8 million shares repurchased in the fourth quarter.
The quantitative Zacks #4 Rank (short-tem Sell rating) for the company 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 HighMount Exploration & Production LLC.
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