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Loews: A Deep Discount to Book
09/15/2020 5:00 am EST
Like Berkshire, Loews’ largest business is insurance, owning 89% of listed property/casualty and life insurer CNA Financial Corporation (CNA), as well as stakes in Boardwalk Pipelines and wholly owned Loews Hotels, which operates 22 properties.
Its 53% stake in offshore oil and gas drilling company Diamond Offshore was written down by $957 million when Diamond filed for Chapter 11 bankruptcy in April.
Loews hit an all-time high of $56.88 a year ago and then plummeted by more than 50% to $27.33 in March this year. It’s now recovered somewhat to $36.87, still close to the lowest price in over a decade.
For the first half of 2020, Loews’ loss was $1.47 billion ($5.16 per share) compared to net income of $643 million ($2.09 per share) in 2019. Book value declined 6.4% to $61.35.
Loews, like Berkshire, has always seen dramatic swings in its reported earnings due to the nature of the insurance business and its large investment portfolio. The losses in 2020 reflected a $408 million write-down on its oil rigs by Diamond Offshore in the first quarter as well as the write-off of Loews’ equity stake.
Other negatives included $182 million in COVID-19 related losses, $61 million due to civil unrest, and $58 million from weather for CNA. There were also losses from Loews Hotels, which were all shut for the second quarter.
The case for investing in Loews has been that it sells at a large discount to its listed subsidiaries, which in turn sell at discounts to their book value. The write-off of Diamond Offshore has reduced the book value, but even after that misstep, Loews still sells at a remarkable 43% discount to its reduced book value.
The management believes it is cheap, with the company having spent $478 million purchasing almost 4% of the outstanding shares. It remains a "Buy" for its deep discount to book value and the opportunity for a rebound in insurance and hotels.
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