Thursday, 10 December 2015

Analysis of Loews 2015

Loews, an American conglomerate

ISIN US5404241086 | WKN 851615

Business: An American conglomerate run by the Tisch family. They now hold four principal subsidiaries: CNA Financial Corporation, Diamond Offshore Drilling, Inc., Boardwalk Pipeline Partners and Loews Hotels & Resorts. Loews are a bit similar to Berkshire Hathaway and their biggest earnings source right now is the insurance subsidiary CNA. The rest of the group is doing fairly poorly.

Active: Main focus is the US.

P/E: 24.61

Comment: Due to the general oil crisis I wanted to go back to take another look at this conglomerate hoping that the price had gone down to a more acceptable level.

Here you can find the previous analysis of Loews Corporation (from back in the days when the analysis table was well... even less pretty)

contrarian values of P/E, P/B, ROE as well as dividend for Loews

The P/E of Loews is at 24.6 which is in my opinion high for conglomerates/investment companies the P/B is however very nice with 0.8 which gives a buy signal from Graham. The earnings to sales are the same as last time with 4% but the ROE is bad with 3.1%. No wonder they spend so much money on buying back shares. the book to debt ratio is ok with 0.4 considering that a large part is insurance.
The yearly revenue growth rate for the last five years has been -0.4% which is awful and this then gives us a motivated P/E of 8 to 12 which means Loews are today higher valued on the market.
They pay a silly dividends in the size of 0.7% which happily only correspond to 16% of their earnings but it has been the same for at least the last six years.

Conclusion: Graham directly says yes to Loews and I am hesitant. The P/E is still slightly too high for me even though I know that comes from a bad year but that will on the other hand most likely continue for a while longer. So P/E too high, the P/B is excellent, ROE is silly as are the dividend payments. They run a strategy of 1. Buying back shares, 2. Invest in subsidiaries, 3. Make acquisitions, 4. Build capital. I find that strategy slightly odd... How can someone in their right mind buy back shares at P/E over 30 (as they were in the 2013 analysis) when they could invest in a company with a P/E of 10 to 15? I have some issues to understand that. It is fine that they have these four strategy targets but to order them... well... that I find wrong.

If this analysis is outdated then you can request a new one.

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