Zacks_Analysts' Blog : Loews at Neutral - Analyst Blog

We are retaining our Neutral rating on Loews Corporation (L) as the company’s performance was weighed upon by lower limited partnership investment results and elevated natural catastrophe losses at CNA and a weaker performance of equity-based investment in the Loews holding company portfolio.

Loews reported third-quarter adjusted net income of 44 cents per share, lagging the Zacks Consensus Estimate by 10 cents, though results were far ahead of 5 cents earned in the prior-year quarter.

Counting on the positives, Boardwalk Pipeline Partners LP (BWP), Loew’s subsidiary experienced increased gas transportation revenues on the back of increased capacities from the completion of several compression projects in 2010 and operating the Fayetteville Lateral.

Further the acquisition of Petal Gas Storage and Hattiesburg Gas Storage will offer growth opportunities along with adding synergies. Besides, Boardwalk’s new gathering pipeline in the Marcellus shale will also help it to capitalize on opportunities as Marcellus is expected to become a very important supply basin for the United States.

The other subsidiary of Loews – Diamond Offshore Drilling Inc. (DO) posted solid third quarter earnings driven by higher contract drilling revenues resulting from an increase in average utilization of high specification floaters.

Loews maintains a strong and liquid balance sheet. Also, it has traditionally indulged in buying back aggressively. During the second quarter, Loews bought back 7.5 million shares for $275 million.

Based on the strength of capital position, the company made a capital contribution of $106 million to HighMount Exploration & Production LLC, another subsidiary and plans to make an equity contribution of $280 million for the equity ownership interest in the joint venture to acquire Petal Gas Storage and Hattiesburg Gas Storage from Enterprise Products Partners.

On the flip side, HighMount in the third quarter generated lower revenue due to lower sales volume stemming from lower drilling activity.

Also, CNA Financial Corporation's (CNA) exposure to catastrophe losses cost it $29 million, a substantial deterioration of $7 million in the year-ago quarter.

The Zacks Consensus Estimate for fourth-quarter 2011 is 77 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $2.87 and $3.06.

The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock 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 High Mount Exploration & Production LLC.