We are upgrading our recommendation on
) to Outperform from Neutral on the back of strong first quarter
results and initiatives taken to strengthen its hotel business.
Loews' first quarter earnings comfortably surpassed the Zacks
Consensus Estimate. The company witnessed lower earnings at
), and HighMount during the quarter. However, higher earnings at
) and higher parent company investment income were the positives.
Higher revenues at CNA Financial coupled with higher investment
income besides investments gains aided the year-over-year growth in
the top line.
Loews aims to strengthen its hotel business, which is the
company's smallest unit. Loews aims to add more hotels to its
portfolio in order to take the count from 18 to more than 30 in the
next three to five years, besides tripling its net income by 2015.
Hence, Loews Hotels & Resorts, entered into an agreement with
CIM Group with the objective of purchasing Renaissance Hotel &
Spa in Hollywood, California. Loews has also planned the renovation
of Loews Regency Hotel, New York. With capital at disposal to
acquire and develop properties, the company is on the look out for
opportunities in Boston, Chicago, San Francisco, Washington, D.C.,
New York, Dallas, Toronto and Seattle to add assets to its
portfolio and hence cater to a larger customer base.
Loews' other subsidiaries also continued to deliver solid
results. CNA Financial's net written premium growth improved 5% on
the heels of strong retention of existing business, rate
improvement on retained business and new businesses in target
markets. Also, in the first quarter, CNA agreed to buy Hardy
Underwriting for $227 million in order to boost the company's
Boardwalk Pipeline's first quarter benefited from improved
storage and transportation revenues earned from HP Storage, though
lower natural gas price was a partial offset. The company had
already bought back 80% stake in Boardwalk HP Storage for $225
million that Loews had purchased to support Boardwalk's purchase of
those storage assets in December. Furthermore, for the Eagle Ford
expansion project, Boardwalk entered into a long-term fee-based
gathering and processing agreement with
Talisman Energy Inc.
) for almost 50% of the processing plants capacity.
However, HighMount generated lower revenue and income in the
first quarter due to lower sales volume stemming from lower
drilling activity as well as decline in natural gas prices. To
weather the declining natural gas price environment, HighMount is
reducing the dry gas development activity in the Permian Basin and
focusing on gas-rich wells with high liquid yield and oil
potential, specifically in the Wolfcamp strata. They also remain
focused on acquiring and developing a core position in the
Diamond Offshore Loews' another subsidiary, again posted lower
earnings in the first quarter, spurred by lower utilization due to
planned downtime, further worsened by increased contract drilling
expenses reflecting the higher costs of operating rigs
internationally rather than domestically. However, Diamond
Offshore continues to work on improving its fleet. The company has
three ultra-deepwater drillships and one moored semisubmersible rig
under construction for an estimated cost of $1.8 billion and $300
million respectively, upon completion. The company has already
contracted two of the drillships to begin working for Anadarko
Petroleum while the remaining two are yet to be contracted.
Management expects these drillships to capitalize on the current
robust day rate environment.
The quantitative Zacks #1 Rank (short term Strong Buy rating)
for the company indicates upward boost on the stock over the near
CNA FINL CORP (CNA): Free Stock Analysis Report
DIAMOND OFFSHOR (DO): Free Stock Analysis
LOEWS CORP (L): Free Stock Analysis Report
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TALISMAN ENERGY (TLM): Free Stock Analysis
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