Loews Corporation (L) is a financial conglomerate sometimes compared with Warren Buffett’s Berkshire Hathaway (BRK.B), suggests Gavin Graham, a contributing editor at Internet Wealth Builder — and a participant in the MoneyShow Canada Premier Virtual Investor Conference on Feb. 2-4.
Like Berkshire, Loews’ principal business is insurance, with a 89% stake in listed property casualty/life insurer CNA Financial (CNA). As well, the company has stakes in Boardwalk Pipelines and privately owned Loews Hotels, which has 27 properties.
Loews hit an all-time high of $56.88 in late 2019 and then more than halved in the pandemic as its majority owned offshore drilling operation, Diamond Offshore, filed for bankruptcy and its hotels were closed by the pandemic. It has since recovered to $46.49.
Loews reported net income of $139 million ($0.50 a share) for the quarter ended Sept. 30. That was double the $72 million ($0.24 a share) in the same quarter of 2019. This was due to stronger results from CNA, whose operating ratio of expenses to revenues fell to 92.6% from 94.6%.
For the nine months to end September, Loews lost $1.33 billion ($4.70 a share) against a profit of $715 million ($2.34 a share) the previous year.
Loews management, the Tisch family, like Warren Buffett, prefers lumpy results if they earn a good return on equity over time rather than smoothly rising earnings. The write-down down on Diamond Offshore reduced earnings from Boardwalk and losses at Loews Hotels offset the improved results from insurance.
Loews has paid a small quarterly dividend of $0.15 for the last decade at least, equivalent to a 1.3% yield. Management prefers to buy back stock, which is selling at a 25% discount to its book value of $63.16, down 4% this year due to the Diamond Offshore write-down.
Loews bought back 16.1 million shares in the first nine months of 2020 for $673 million, equivalent to a price of $41.80 per share.
With the insurance cycle moving in CNA’s favor, Boardwalk Pipelines volumes increasing, and Loews Hotels reopening, Loews operating profits should increase strongly in 2021.
Selling at a 25% discount to an understated book value, as both CNA and Boardwalk sell at discounts to their own book values, Loews remains a Buy.