We are downgrading our recommendation on Loews Corporation (L) to Underperform. Loews’ first quarter earnings were in line with the Zacks Consensus Estimate and the company benefited from improved investment income at its insurance unit, CNA Financial.
However, the volatility in natural gas and oil prices raises our concern for Diamond Offshore and HighMount’s earnings performances. Additionally, the soft insurance market and weak economic conditions remain a headwind for CNA Financial.
We believe that the challenging economic environment will have a restrictive effect on the top-line growth of the company. Our target price of $31.00 per share equates to about 8.4X our 2010 earnings estimate. This implies an expected negative total return of 8.6% over that period, which is consistent with our Underperform recommendation on the shares.Zacks Investment Research
