We recently maintained a Neutral recommendation on
Leucadia National Corporation
(
LUK
), anticipating the company to perform in line with the
market.
Leucadia, headquartered in New York and founded in 1854, is a
well diversified company having exposure to manufacturing, oil
and gas drilling services, gaming entertainment, real estate,
medical product development operations and various other
investment activities.
The company is well known for its meaningful acquisitions and
dispositions of non-core or non-profitable assets. Of the many
acquisitions, particularly the recent one of National Beef
Packaging Company, LLC, has added a new dimension to the
company's existing portfolio. The new business accounted for
roughly 87% of the company's third quarter 2012 total
revenue.
Of late the company also fully disposed of its remaining stake
in Fortescue for net cash proceeds of approximately $152.9
million, putting an end to the pursuit started in 2011. Moreover,
Leucadia bought the remaining stake in Jefferies in an all-stock
deal. Both these transactions are likely to bode well for
Leucadia, with Jefferies merger to open up new investment
opportunities.
Despite these positives, the company has to grapple with
issues like the rising cost of cattle; the prices of which are
beyond the company's control. This limits the business from
flourishing and accounts for a major portion of the company's
total cost of sales. Also, animal health and disease issues
restrict growth while geopolitical risks act as a major
impediment to international trade growth.
Moreover, general housing market weakness, investments in
volatile materials, and intense competition from its peers
including
Apollo Investment Corporation
(
AINV
) and
The Blackstone Group
(
BX
) add greatly to our concerns for the company. Apollo Investment
posted earnings of 22 cents while The Blackstone Group posted
earnings of 55 cents for their respective quarters ending
September, 2012.
The current Zacks Consensus Estimate for the fourth quarter of
2012 is 59 cents, representing a year-over-year growth of 28.3%.
Estimates for 2012 and 2013 are at $3.78 and $2.49,
respectively.
APOLLO INV CP (AINV): Free Stock Analysis
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BLACKSTONE GRP (BX): Free Stock Analysis
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LEUCADIA NATL (LUK): Free Stock Analysis
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