Zacks_Analysts' Blog : S&P Upgraded Outlook on Loews - Analyst Blog

Standard & Poor's Ratings Services (S&P) upgraded the outlook on Loews Corporation (L) to "positive" from "stable". The rating agency also affirmed the investment-grade counterparty credit rating of “A”.

Based on Loews’ strength of cash flows coupled with solid earnings to service debt as well as meet financial obligations, the rating agency raised the outlook.

Loews’ third quarter operating earnings were way ahead of the Zacks Consensus Estimate.  However, results fell short of the prior-year quarter due to decline in limited partnership income at the subsidiaries of the company like CNA Financial, coupled with lower earnings at Diamond Offshore Drilling on account of lower utilization and drilling suspension in the Gulf of Mexico.

The Zacks Consensus Estimate for fourth-quarter 2010 is 81 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $2.64 per share and $3.38 per share.

Recently, the financial strength ratings (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of Travelers Auto Insurance Co. of New Jersey and Travelers of New Jersey Group, wholly owned subsidiaries of The Travelers Companies Inc. (TRV), the nearest peer of ACE Limited, were withdrawn by another rating agency, A.M. Best Co.

CNA Financial’s recent agreement with National Indemnity has helped it shed all its asbestos and environmental liability, thus imparting stability to its operations. However, the soft insurance market and weak economic conditions remain a headwind for CNA Financial. Additionally, the volatility in natural gas and oil prices raises our concern for Diamond Offshore’s and HighMount’s earnings. But Boardwalk’s increased capacity, expansion projects and improved financial market conditions bode well. A strong balance sheet with low leverage and adequate cash are among the other positives.

We maintain our “Neutral” recommendation on Loews Corporation over the long term. The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

Headquartered in New York, New York, Loews Corporation is a diversified holding company. The company’s principal subsidiaries are CNA Financial Corporation (CNA), Diamond Offshore Drilling Inc. (DO),  Boardwalk Pipeline Partners LP (BWP), Loews Hotels Holding Corporation and HighMount Exploration & Production LLC.