Wednesday September 05, 2012
by Adrian Day, editor The Global Analyst
Selling at a discount to its holdings Loews Corp. (L) is an asset value play.
Loews is a holding company, with three large public investments (CNA, insurance; Diamond Offshore, oil drilling; and Boardwalk Partners, pipelines), along with several smaller investments, including Loews hotels.
Taking the current share price for its public investments, and book value for the other investments (including net cash of a little over $9 per shares), a conservative net asset value is around $53 a share.
That means Loews is trading at a better-than 24% discount to its net asset values (NAV). This is one of the widest discounts for Loews, despite a rising NAV.
Loews generates a lot of cash, which has been building for some years now. There is $3.7 billion net cash at the holding company level.
Although the company has supported acquisitions by its portfolio companies, it has made no major acquisition at the holding company level for some time.
Management takes a cautious view, with CEO James Tisch saying he is “very concerned about the global economy (and sees) no urgency to do big deals.”
So the company has been buying back shares, spending over $50 million in the last quarter. It has indeed bought back shares opportunely over many years.
The share count has declined from 1.3 billion in 1970 to less than 400 million today. Buying shares at less than NAV increases the value of the shares for remaining shareholders.
We don’t see much fundamental change in the company’s activities in the near term. But buying a well-run company that continues to increase NAV, while trading at a significant discount to its value, is a good buy in our mind.
We would wait for a correction to buy—it traded under $39.50 earlier in the month—but would continue to hold. Indeed, our last buy recommendation was at $39.45 at the beginning of the month.
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