Insurance Stocks

Loews Corporation Valuation – November 2015 Update $L

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Loews Corporation (L) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Loews Corporation is a holding company. The Company, through its subsidiaries, is engaged in commercial property and casualty insurance; operation of offshore oil and gas drilling rigs; transportation and storage of natural gas and natural gas liquids and gathering and processing of natural gas, and operation of a chain of hotels. The Company’s subsidiaries include CNA Financial Corporation (CNA); Diamond Offshore Drilling, Inc. (Diamond Offshore); Boardwalk Pipeline Partners, LP (Boardwalk Pipeline), and Loews Hotels Holding Corporation (Loews Hotels). CNA’s insurance products primarily include commercial property and casualty coverages, including surety. Diamond Offshore is engaged in the business of operating drilling rigs. Boardwalk Pipeline is engaged in natural gas and natural gas liquids transportation and storage and natural gas gathering and processing. The subsidiaries of Loews Hotels Holding Corporation operate a chain of 21 hotels.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of L – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $13,528,418,391 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -68.33% Fail
5. Moderate PEmg Ratio PEmg < 20 20.76 Fail
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.73 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

L value Chart November 2015

EPSmg $1.79
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth $26.02
MG Value based on 0% Growth $15.25
Market Implied Growth Rate 6.13%
Current Price $37.26
% of Intrinsic Value N/A

Loews Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor is concerned by the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $3.40 in 2011 to an estimated $1.79 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.13% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Loews Corporation (L)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

L Charts November 2015

Graham Number $49.88
PEmg 20.74
PB Ratio 0.73
Dividend Yield 0.68%
Number of Consecutive Years of Dividend Growth 1

 

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Most Recent Balance Sheet Figures

Long-Term Debt $9,791,000,000
Total Assets $78,015,000,000
Intangible Assets $373,000,000
Total Liabilities $59,033,000,000
Shares Outstanding (Diluted Average) 369,970,000

Earnings Per Share History

Next Fiscal Year Estimate $2.13
Dec14 $1.55
Dec13 $1.53
Dec12 $1.43
Dec11 $2.62
Dec10 $3.07
Dec09 $1.30
Dec08 $9.05
Dec07 $3.65
Dec06 $3.75
Dec05 $1.72
Dec04 $1.88
Dec03 -$1.28
Dec02 $1.64
Dec01 -$0.96
Dec00 $3.10
Dec99 $0.56
Dec98 $0.68
Dec97 $1.15
Dec96 $1.99
Dec95 $2.50

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.79
Dec14 $1.76
Dec13 $1.91
Dec12 $2.57
Dec11 $3.40
Dec10 $3.92
Dec09 $4.19
Dec08 $5.09
Dec07 $2.73
Dec06 $2.02
Dec05 $0.97
Dec04 $0.69
Dec03 $0.27
Dec02 $1.03
Dec01 $0.78
Dec00 $1.60
Dec99 $1.03

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Retail Industry – August 2015
27 Companies in the Spotlight This Week – 11/8/14
Loews Corporation Annual Valuation – 2014 $L
19 Companies in the Spotlight This Week – 8/9/14
Loews Corporation Quarterly Valuation – August 2014 $L

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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