We have downgraded our recommendation on Loews Corp. (L) to Underperform.
 
Based in New York, Loews Corp. is one of the largest diversified corporations in the United States. Its principal operating units are CNA Financial Corp. (CNA), a 90% owned subsidiary; Diamond Offshore Drilling Inc. (DO), a 50.4% owned subsidiary; HighMount Exploration & Production LLC, a wholly owned subsidiary; Boardwalk Pipeline Partners LP (BWP), a 66% owned subsidiary; and Loews Hotels, a wholly owned subsidiary.
 
Loews reported first-quarter net income of $420 million or 99 cents per share, compared with a net loss of $647 million or $1.49 per share in the prior-year quarter. Excluding investment gains and losses, results came in at 96 cents per share.
 
The company’s first-quarter earnings were in line with the Zacks Consensus Estimate, benefiting from improved investment income at its insurance unit CNA Financial.
 
However, the weak economic conditions and soft insurance market led to decreased insured exposures and lower rates and remain a headwind for CNA Financial. These conditions continue to pressure premiums, income levels and expense ratio. Until these issues are successfully managed, we see few catalysts for a significant upside potential in the near term.
 
Moreover, the volatility in natural gas and oil prices raises our concern for Diamond Offshore and HighMount’s earnings performances. Dayrates that Diamond Offshore receives for new contracts are no longer at the peak levels achieved at the height of the most recent up-cycle. Given the unpredictable economic environment, the demand for Diamond Offshore services and the dayrates it is able to command could soften further.
 
Additionally, in light of the current low price environment, HighMount continued its limited drilling program. But a reduction in drilling activity and low natural gas prices negatively impact production volumes and revenues. While HighMount is disposing of its non-core assets in Alabama and Michigan, we expect limited top line growth, given the challenging operating environment.
 
Boardwalk’s increased capacity and expansion projects and improved financial market conditions, on the other hand, bode well. Even so, we believe that the challenging economic environment will have a restrictive effect on the top-line growth of the company.
 
Shares of Loews Corp. decreased 32 cents or around 1% to $33.60 during Friday’s regular trading on the New York Stock Exchange.
Read the full analyst report on “L”
Read the full analyst report on “CNA”
Read the full analyst report on “DO”
Read the full analyst report on “BWP”
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