We retain our Neutral recommendation on Loews Corporation following mixed second quarter earnings results.
On Jul 29, Loews Corporation reported its second quarter 2013 operating net income of 71 cents per share. Results fell short of the Zacks Consensus Estimate by 2.7% but surged 51% year over year. Higher parent company investment income drove the improvement. However, lower earnings at Diamond Offshore limited the upside. The multiline insurer managed to deliver positive earnings surprise in 2 of the last 4 quarters with an average beat of -5.3%.
Nevertheless Loews remains focused on strengthening its hotels business, which is the company’s smallest unit. With capital at its disposal to acquire and develop property, the company intends to seek opportunities in Boston, Chicago, San Francisco, Washington, D.C., New York City, Dallas, Toronto and Seattle, in order to add assets to its portfolio. Loews aims to take the count from 18 to more than 30 in the next two to four years, besides tripling its net income by 2015.
Also, to diversify its operations, Loews entered into a joint venture with Boardwalk Pipeline Partners. It will foray into the natural gas liquids business and capitalize on the opportunities offered by the market.
Additionally, in June, Standard & Poor’s upgraded CNA Financial’s financial strength rating from A- to A, reflecting its solid capital position and earnings.
On the tepid side, Diamond Offshore’s (DO - Free Report) results in the upcoming quarters will remain depressed as it will experience a greater number of surveys resulting in more planned downtime. Also, contracted backlog in 2013 will restrict Diamond Offshore from capitalizing on strong demand in ultra-deepwater and deepwater markets in the near term.
Concurrently, HighMount continues to generate lower revenues and income due to lower sales volume stemming from lower drilling activity as well as a decline in natural gas prices.
Loews currently carries Zacks Rank #4 (Sell).
Other stocks to consider
While we prefer to remain cautious on Loews, other multi-line insurers FBL Financial Group Inc. (FFG - Free Report) and Kemper Corporation (KMPR - Free Report) both carry favorable Zacks Rank #1 (Strong Buy) and appear impressive.