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A Look at Loews: The Sum of the Parts

09/10/2019 5:00 am EST

Focus: FINANCIALS

Adrian Day

Chairman and CEO, Adrian Day Asset Management

Loews Corp. (L), a conglomerate run by CEO James Tisch, has seen mostly positive operating results from its holdings, particularly its largest, CNA Insurance (CNA), whose new business lines are developing well, explains Adrian Day editor of Global Analyst.

CNA accounts for about 70% of the value of each Loews’ share. Offsetting that was a modest decline in earnings at Loews Hotels and ongoing and growing losses at Diamond Offshore (DO).

Despite a long-lasting, very weak market, Diamond continues to enhance its fleet while maintaining a good balance sheet. Since its earnings are consolidated into the parent, it adds to quarterly fluctuation, but it represents only about $2 per share of value.

With about $3.5 billion in cash and investments at the holding company level — 80% of it in cash — Loews has a rock-solid balance sheet with which it continues to buy back its own shares, adding another 3 million shares this past quarter.

This is a long-term trend for the company; shares outstanding stood at 332 million at the end of 2017 and now stand at 303 million.

Indeed, a decade ago, Loews had 40% more shares out than it does today. Notwithstanding its healthy balance sheet, Loews says it is unlikely to add another major business to its portfolio, believing businesses are very expensive in the current easy money environment.

Given its low 0.5% dividend yield, Loews is usually valued on a sum-of-the-parts basis. Today, its book value is $64.49 per share, most of which is in publicly listed, and therefore easy to value, companies. This 25% discount is compelling, close to the 10-year highs in the range, though there have been spikes a couple of times.

Though we have no argument at all with the high cash levels and patient buying discipline, we would prefer greater diversification in his assets — clearly the fortunes of CNA have an overwhelming affect on those of Loews — and we would favor a higher dividend, though that is unlikely.

A recovery in the oil market, and specifically the offshore exploration business, would boost the company’s reported earnings. We are holding, and would accumulate near the current price level.

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