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Loews Corporation (L) Quarterly Valuation

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Loews Corporation is a holding company that utilizes value investing in its operating strategy, so it is naturally a very intriguing company to value investors.  But just like any other company, it must be put through the same fundamental analysis in order to determine if it is suitable for Intelligent Investors.  Just because a company sounds good because of its management strategies does not mean it automatically is a good investment.  All companies must be analyzed on a fundamental level to determine whether the market’s current price is fair.  By using the ModernGraham analysis that we can determine which of those companies may have the least amount of risk going forward, and then compare the fundamental analysis of any other potential investment.  What follows is how Loews Corporation fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Loews Corporation is a holding company. Its subsidiaries are engaged in commercial property and casualty insurance, operation of offshore oil and gas drilling rigs, exploration, production and marketing of natural gas and oil (including condensate and natural gas liquids), interstate transportation and storage of natural gas and operation of hotels. Its subsidiaries include CNA Financial Corporation, which is a 90% owned subsidiary; Diamond Offshore Drilling, Inc., which is a 50.4% owned subsidiary; HighMount Exploration & Production LLC, and Loews Hotels Holding Corporation. On June 10, 2011, CNA acquired all of the publicly traded shares of common stock of CNA Surety Corporation (CNA Surety). In November of 2011, CNA completed the sale of its 50% ownership interest in First Insurance Company of Hawaii (FICOH). In February 2013, its Loews Hotels & Resorts completed the acquisition of the 225-room Back Bay Hotel in Boston.

L Chart

L data by YCharts

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass all 6 of the following tests: Score = 4/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $50.20
MG Opinion Fairly Valued
Value Based on 3% Growth $34.60
Value Based on 0% Growth $20.28
Market Implied Growth Rate 4.85%
PEmg 18.19
PB Ratio 0.87

Balance Sheet – 9/30/2013 

Total Debt $9,705,000,000
Total Assets $79,510,000,000
Intangible Assets $991,000,000
Total Liabilities $60,155,000,000
Outstanding Shares 387,160,000

Earnings Per Share

2013 (estimate) $2.93
2012 $1.43
2011 $2.63
2010 $3.11
2009 $1.31
2008 -$0.38
2007 $3.64
2006 $3.80
2005 $1.69
2004 $1.88
2003 -$1.40

Earnings Per Share – ModernGraham 

2013 (estimate) $2.39
2012 $1.95
2011 $2.16
2010 $2.05
2009 $1.68
2008 $1.95

Dividend History

L Dividend Chart

L Dividend data by YCharts

Conclusion:

Loews Corporation is an intriguing company for Enterprising Investors and should be added to their watch lists.  The company is not suitable for the Defensive Investor, having achieved insufficient earnings growth and stability over the ten year historical period.  Enterprising Investors look over a shorter time horizon, though, and should be very pleased with Loews Corporation’s financials.  Those who determine themselves to be Enterprising Investors after considering the definitions of each investor type should feel comfortable proceeding with further research to determine if the company is right for their individual portfolios.  From a valuation perspective, the company has grown its EPSmg (normalized earnings) from $1.68 in 2009 to an estimated $2.39 for 2013.  While this is not a huge level of growth, it does support the market’s implied growth rate of 4.85%, and the ModernGraham valuation model considers the company to be fairly valued.

What do you think?  What value do you place on Loews Corporation (L)?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Loews Corporation (L) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

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