(L) Loews Corporation Upgraded by Analysts

We are upgrading our recommendation on the shares of Loews Corp. (L) to Neutral. The company’s third-quarter earnings of $1.08 per share was well ahead of the Zacks Consensus Estimate of 87 cents a share. Loews reported a loss of 33 cents a share in the year-ago quarter.
 
The improved earnings were driven by increased investment income and a considerable reduction in investment losses at CNA Financial Corp. (CNA), besides strong results at Diamond Offshore Drilling Inc. (DO). 
 
While the spin-off of Lorillard in 2008 eliminated the company’s overhang of tobacco litigation and the strong rebound in investment income is impressive, we think that the continuation of a stressed economic environment will have a restrictive effect on the top-line growth of the company.
 
The recent financial market appreciation bodes well for Loews. Both the holding company as well as the subsidiary, CNA, has experienced significant improvements in their investment income. Increase in the mark-to-market value of the investment portfolio has also resulted in considerable expansion of the company’s book value.
  
Diamond Offshore experienced a strong quarter with $170 million of earnings, up 17% year over year. Though it is currently experiencing a weak demand brought about by the fall in oil and natural gas prices, we think that Diamond's existing contract backlog should help mitigate the impact of the softening demand in the marketplace.
  
Also, in September, Diamond Offshore purchased a newly constructed, dynamically positioned drilling rig that is capable of operating in 7,500 feet of water. This rig has been named Ocean Valor This acquisition is consistent with Diamond's successful strategy of buying attractive assets at a time when pricing is favorable. Diamond was able to acquire the rig for approximately $490 million at an auction, well below the current cost to construct a similar new build rig.
 
While the management at CNA Financial has begun to focus on profitability instead of revenue generation, CNA’s operating income over the past few quarters has remained under pressure as a result of lower net investment income, economic slowdown and higher catastrophe losses. Though with the appreciation of the financial markets, the company is able to experience improved investment income, the premium volume still remains restricted as a result of the economic slowdown.
 
In June 2008, Loews had disposed of its entire ownership interest in Lorillard Inc. through the redemption of Carolina Group stock in exchange for Lorillard common stock and an exchange of its remaining Lorillard common stock for Loews common stock. In the recent years, Loews is looking to grow in areas such as natural gas exploration. So this spin-off decision was in line with the company’s strategy.
 
Loews, a holding company, is one of the largest diversified corporations in the United States. Its principal subsidiaries are CNA Financial Corp., a 90% owned subsidiary; Diamond Offshore Drilling Inc., a 50.4% owned subsidiary; HighMount Exploration & Production LLC, a wholly owned subsidiary; Boardwalk Pipeline Partners LP (BWP), a 72% owned subsidiary; and Loews Hotels, a wholly owned subsidiary.

For Immediate Release

Chicago, IL – November 3, 2009 – Zacks Equity Research highlights Apple, Inc.(AAPL) as the Bull of the Day and Sohu.com (SOHU) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Loews Corporation (L), CNA Financial Corporation (CNA) and Diamond Offshore Drilling Inc. (DO).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

Apple, Inc.(AAPL) has experienced tremendous growth, driven by the success of its iPhone and increased Mac shipments. The company reported strong fiscal 2009 results with higher revenue (12.5% year over year) and earnings (17.4% year over year) growth despite the recession. The results beat the Zacks Consensus Estimate and the company's own guidance.

The company is currently benefiting from a positive mix shift to the higher-margin iPhone/iPod business from its traditional MP3 players. The Macintosh product continues to gain market share, with significant gains in portables, music players and smart phones.

Year-to-date, Apple share prices have more than doubled. Apple's valuation premium is justified, given the company's positive attributes and leaves room for further upside from the current levels. We have increased estimates for full-year 2010 and upgrade the stock to Outperform. We set a six-month price target of $225.

Bear of the Day:

While Sohu.com’s (SOHU) third-quarter earnings beat the Zacks Consensus Estimate and were in line with the company's own guidance, the outlook for the fourth quarter was far below expectations. The company's operating expenses have been steadily going up, which we fear could limit the growth in earnings. 

Moreover, recent delays in game launches, weak ad spending -- which is hurting the brand advertising revenue -- and intense competition pose a threat. However, strength in its online games and portal business are expected to be the strongest drivers for growth beyond 2010. 

Currently, we see limited upside for Sohu's revenue and earnings growth in the near term. We downgrade the stock to Underperform from our previous Neutral rating and set a six-month price target of $45.00.

Latest Posts on the Zacks Analyst Blog:

Loews Corp. Records Profit

Loews Corporation’s (L) third quarter income from continuing operations came in at $1.08 per share compared to a loss of 33 cents in the year-ago quarter. Results primarily reflected a 26% year-over-year increase in revenues.

The improved results were driven by increased investment income and a considerable reduction in investment losses at CNA Financial Corporation (CNA) and strong results at Diamond Offshore Drilling Inc. (DO). Also, the results reflect a strong rebound in investment income, primarily from improved limited partnership results.

CNA Financial Corporation’s operating income increased to $304 million from $76 million in the prior-year period. Diamond Offshore experienced a strong quarter with $170 million of earnings, up 17% year-over-year.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

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