Loews Retained at Neutral
We are retaining our Neutral recommendation on Loews Corporation (L), following its third quarter results. Though CNA Financial posted improved results alongside enhanced results from equity and limited partnership investments at the parent company, lower earnings at Diamond Offshore weighed on the results.
Loews remains on track to take the hotel count from 18 to more than 30 in the next three to five years, besides tripling its net income by 2015. It had purchased Renaissance Hotel & Spa in Hollywood in California and planned the renovation of Loews Regency Hotel.
Recently, Loews Hotels announced a decision to buy Madison Hotel in Washington, D.C. from Jamestown Properties. With capital at its disposal to acquire and develop property, the company will seek like opportunities in Boston, Chicago, San Francisco, Washington, D.C., New York, Dallas, Toronto and Seattle to add assets to its portfolio and hence cater to a larger customer base.
The company had forayed into natural gas liquids business with Boardwalk Pipeline, its subsidiary, acquiring PL Midstream. The acquisition of Boardwalk Louisiana Midstream (PL Midstream acquired through the joint venture was renamed Boardwalk Louisiana Midstream) along with the organic growth projects (the Southeast market expansion and the Eagle Ford expansion projects) is expected to put up $1.2 billion of new assets for Boardwalk.
On the flip side, revenue at HighMount continues to remain soft. Also, HighMount is estimated to record non-cash after-tax ceiling test impairments of $50 million to $100 million in the fourth quarter of 2012. For full year, it is estimated to be $386 million to $436 million.
However, to weather the declining natural gas price environment, HighMount is focusing its drilling activities into various sites -- Mississippian line in Oklahoma and the Wolfcamp strata in Sonora, Texas in particular -- that could result in higher oil production.
Diamond Offshore (DO), despite posting lower earnings yet again, announced plans to rebuild the Ocean Apex, a Victory-class semi-submersible rig at a cost of approximately $300 million.
The Zacks Consensus Estimate for fourth quarter and 2012 is currently pegged at 37 cents and $1.80 respectively. These represent a year-over-year decline of 52.6% and 33.5% for fourth quarter and 2012.
Loews carries a Zacks #3 Rank, translating into a short-term Hold rating.
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