Monday, August 3, 2009

Following Up on Loews Earnings and Call

I finally got a chance to read through Loews' conference call from this morning. By the way, Seeking Alpha is an awesome resource not only for stock research, but they post transcripts of conference calls if you don't have a change to listen to it. I do post things there from time to time as well, so feel free to check that out.

I thought Loews had a pretty darn good quarter. I've read great things about the Tisch family and their ability to manage businesses as well as buy assets at the right price. Here are a couple of quotes from CEO Jim Tisch, about their various businesses:

Diamond Offshore:

Diamond Offshore had an excellent quarter, reporting its second highest earnings on record. For the quarter, average day rates and utilization for Diamond’s fleet were strong. Its revenue backlog currently stands at approximately $8.7 billion. Diamond recently completed the acquisition of its newest rig, the Ocean Courage. This new build, sixth generation rig was purchased through a foreclosure auction for $460 million. Last year, prices for similar new build rigs peaked at approximately $750 million. We feel comfortable that this acquisition represents an excellent opportunity that is consistent with Diamond’s proven strategy of acquiring and upgrading rigs at times when the market is well off of its cyclical peak. Diamond’s board of directors
recently declared a special quarterly dividend in addition to the regular quarterly dividend which together totaled $2.00 per share. This marks a continuation of Diamond’s policy of paying out special cash dividends, reflecting the earnings and the financial position at Diamond.

CNA Financial:

CNA achieved must improved results, reporting a 22% increase in operating income over the prior year. In its core property and casualty operations, CNA had another quarter of steady performance, reporting a 98.1% combined ratio. It also had favorable rate trends and renewal retention, as well as strength in writing new business. Further reinforcing CNA’s underwriting discipline and conservatism, the company reported favorable reserve development for the 10th consecutive quarter. We have seen continuing improvement in the financial markets and as of June 30, CNA’s book value per share had included by more than 31% since the beginning of the year, even after taking into account the quarter’s realized losses. The recovery in the market value of CNA’s portfolio was primarily led by corporate and municipal bonds.

They also have significant investments into natural gas production and transportation, which you can read more about in the transcript. Anyone who reads this blog knows my feelings about natural gas.

You also get Loews Hotels, which is an excellent business. Oh, and they have $2.4 billion in cash.

They increased their book value this quarter from $30.73 to $34.60. The stock is still trading well below book value after today's solid gains.

Jim Tisch briefly touched on the market undervaluing Loews, and laid out many positives.

You know from my perspective it’s really frustrating. The stock, as you said the stock trades recently as much as $1 below the value of the public pieces. That doesn’t take into account the nonpublic pieces. And the nonpublic pieces include our cash net of debt. So $2.4 billion less the $867 million of long term debt. It includes our GP interest in Boardwalk Pipeline. It includes Loews Hotels. It includes our investment in HighMount Exploration. It includes $200 million that we have in debt of Boardwalk Pipeline. And it includes $1.25 billion of CNA preferred stock. So sometimes I feel, when I think about Loews, like the guy who’s hawking something on TV saying, “But there’s more. And there’s more. And there’s more.” And listen, the market is well aware of that but it selects not to pay attention to it.
The market is also well aware, I’m sure, of although I’ll reiterate it now just to make sure, the market is well aware of number one, our quest to build long term value, our track record in doing that. The last number I saw was a 16% compound annual rate of return over the past 49 or 50 years. And if you go back more recently, I saw a figure from 1981 of a 19% compound annual rate of return. So I’m not complaining, because rather than complain what we have done from time to time when the market doesn’t recognize the value is repurchase shares. And just to repeat one more time, we have a history of repurchasing shares going back to the seventies and every decade, we have purchased at least 25% of our outstanding shares in that decade. So that in 1970 we started off with the equivalent today of 1.300 billion shares and at
last count that’s down to about 433 million. So thank you for that question allowing me to stand up on my soapbox and give a little rant.

I see a lot of value here. I can tell you right now I'll be buying shares. And likely soon. Companies like this with savvy management that don't get over leveraged and are transparent with what they're doing are what every investor dreams about.

Disclosure: No Positions.

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