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Loews (L) Down 6.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Loews (L). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Loews due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Loews Q2 Earnings Surpass Estimates, Revenues Rise Y/Y

Loews reported second-quarter 2019 earnings of 82 cents per share, which beat the Zacks Consensus Estimate by 9.3% and increased 13.9% year over year.

The improvement stemmed from higher earnings contributed by CNA Financial and Boardwalk Pipeline, partially offset by lower parent company net investment income and decline in Diamond Offshore earnings.

Behind the Headlines  

Operating revenues of $3.6 billion increased 0.8% year over year. Higher insurance premiums and operating revenues and other aided the top line.

Total expenses increased nearly 2% year over year to $3.3 billion on higher insurance claims and policyholders' benefits as well as higher operating expenses.

Book value excluding accumulated other comprehensive income as of Jun 30, 2019 was $64.48 per share, up 3.7% from $62.16 as of Dec 31, 2018.

Segment Details

CNA Financial’s revenues increased 2.2% from the prior-year quarter to $2.76 billion. Its reported net loss attributable to Loews Corp. was $249 million, up 3.8% year over year. The quarter witnessed improved results in its Life & Group business, partially offset by lower favorable net prior year reserve development in the Property & Casualty business.

Boardwalk Pipeline’s revenues increased 14.7% year over year to $327 million. Net income increased more than threefold to $53 million. The company witnessed higher earnings from transportation contracts mainly due to growth projects recently placed into service, partially offset by contract restructuring and expirations.

Loews Hotels’ revenues declined 7.5% year over year to $186 million. Income from Loews Corp. was $12 million, down 29.4% year over year. Earnings declined largely due to charges of $7 million related to pre-opening expenses incurred at hotels under development and the write-off of capitalized development costs related to a potential development site.

Diamond Offshore’s revenues plunged 17.3% year over year to $224 million. Net loss attributable to Loews Corp. was $52 million, wider than $37 million loss incurred in the year-earlier quarter. This downside was due to continuing challenging market conditions, higher contract drilling expense due to incremental amortization of certain previously deferred contract-related costs and drilling rig downtime.

Share Repurchase Update

The company bought back 3 million shares for $151 million in the second quarter.  Subsequently, through Aug 2, 2019, it repurchased another 0.4 million shares for $23 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.15% due to these changes.

VGM Scores

At this time, Loews has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Loews has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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