We recently maintained our Neutral recommendation on Leucadia National Corporation ().
Based in New York the company engages in manufacturing, oil and gas drilling services, gaming entertainment, real estate activities, medical product development operations and various other investment activities in the United States.
The industries in which Leucadia operates are vulnerable to general market conditions. It was after consistent and appreciable improvements in the global economy that the company has fared well in the second quarter of fiscal year 2011, reporting earnings per share of 74 cents as compared with a net loss of $1.01 per share in the year-ago quarter and earnings of 5 cents in the first quarter of 2011.
Top line in the second quarter jumped 160.5% year over year to $753.4 million from $289.2 million in the year-ago comparable quarter. Of the total revenue, Manufacturing business accounted for 8.6%, Oil and Gas Drilling segment 4.3%, Gaming Entertainment 4.1%, Domestic Real Estate 0.4%, Proceeds from Other operations 1.9%, and corporate segment 80.7%.
We believe the company largely benefits from extensive diversifications into a variety of businesses. The company’s strategy to grow through acquisitions of companies in crises increases its profitability.
However, investing in volatile materials such as base metals reduces the value of the company’s investments. Moreover, Leucadia faces intense competition from various companies including Apollo Investment Corporation ((AINV - Snapshot Report)) and The Blackstone Group ((BX - Analyst Report)), among others. A lower pricing for the products and new competitors might affect both top- and bottom-line results.
The current Zacks Consensus Estimate for the third quarter of 2011 is 70 cents, representing an annual decline of 34.58%. Estimates for fiscal years 2011 and 2012 are $2.14 and 78 cents, representing year-over-year declines of 72.06% and 63.55%, respectively.