Turnaround at Loews?

04/23/2015 7:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

We see this diversified company as a turnaround situation and recommend that investors buy while the shares are trading at a discount, explains Adrian Day, editor of Global Analyst.

Loews Corp. (L) has been hurt by the decline in the oil price, hurting Diamond Offshore, its publicly traded offshore driller in particular and Boardwalk Pipelines to a lesser extent.

Diamond did not pay a special dividend this past quarter and will not for the foreseeable future. It wants to preserve cash and seek opportunities to purchase rigs.

With parent Loews’ help, it is in a position to capitalize on the turmoil in the offshore drilling market. The current downturn, the company believes, is part of a cycle; “the industry will recover,” it’s “just a matter of time”.

The other major public unit, CNA insurance, having turned around over the past several years, did, however, pay a special dividend, generating $484 million for Loews. It now has a strong balance sheet, which S&P calls “AAA-level capital.”

Loews hotels is also showing strong improvement, partly because of capital investment over the past several years. The company has renovated some older hotels and is expanding aggressively in key markets in the US and now into Europe.

Loews ended the year with $5 billion in cash and short-term investments. The company has been famously slow (notoriously slow, to some investors) at investing its capital. But, it says, the cash “gives (it) the flexibility to move quickly when opportunity knocks.”

Instead, it continues to repurchase shares (currently trading at a 20% discount to book), buying back some 4% of shares during 2014 for $620 million.

Following the oil price decline, it also purchased nearly 2 million shares of Diamond. Loews is a holding for patient investors; it’s a buy on weakness, say, under $40 in the current environment.

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