L - Loews: Looking To Test 2022 Highs Shortly

Summary

• Shares have given a buy signal on the intermediate technical chart.
• CNA continues to perform with Boardwalk's large backlog and Loews Hotels post-pandemic recovery also helping the investment case.
• Aggressive buybacks continue to increase Loews' book value per share.

Intro

We wrote about Loews Corporation ( L ) back in October of 2020 when we expected the holding company to breakout to the upside in short order. Shares at the time were trading at approximately $36 a share. The breakout actually took place not long after our commentary with shares having now gained well over 60% since the breakout took place. The question now is whether shares can continue to rally from their present level ($59.58) and keep on making higher highs to the upside.

The recent crossing over of the 10-week moving average above the 40-week definitely is a positive sign with respect to potential share-price appreciation despite the fact that the stock printed a lower low in September of last year. Therefore, to try and decipher share-price direction over the near term & since we have no forward-looking guidance to run off, we will look at CNA's ( CNA ) dividend and Loews' valuation in order to get a gauge on how fast earnings can grow going forward.

Value

Essentially, the future direction of Loews boils down to the relationship between the company's valuation and profitability metrics. On the valuation side, with respect to book value per share, Loews is certainly going in the right direction. At the end of the company's most recent third quarter, book value per share (Excluding AOCI) came in at $74.11 whereas the present price of the company comes in at approximately $60 per share. Given that publicly traded property & casualty insurance firm CNA (Loews owns 90% of the firm) makes up the lion's share of Loews' earnings, the book value per share or the price-to-book ratio is a solid read on how cheap shares currently are.

Loews' rising book value per share is in no small part due to how aggressive management has been with its share buybacks in recent times. The total number of shares outstanding came in at approximately 238 million at the end of Q3 which means almost 40% of shares outstanding have been retired by management over the past nine years alone. Management continues to believe the respective values of private subsidiaries (Boardwalk, Loews Hotels, as well as Altium Packaging) continue to trade at a steep discount to what they are really worth. Boardwalk for example has delivered over $160 million of net profit for the parent company over the first three quarters of 2022 alone. Moreover, it can be seen that CNA Financial Corporation is currently trading much cheaper than the market at present, especially on the sales side as well as its low cash-flow multiple.

CNA Importance

The strength of CNA's profitability can be seen in its dividend metrics (where an extra $2 per share special dividend was actually paid out in Q1 of 2022). This means the trailing dividend yield of CNA of approximately 8.3% is much higher than the stated $1.60 amount which equates to a 3.72% yield. Furthermore, these sizable special dividends are not solely one-off payments as seven $2.00 special dividend payments have been returned to shareholders over the past eight years alone. Suffice it to say, given CNA´s low cash-flow multiple and solid debt metrics (Interest coverage ratio of 10.97 and debt-to-equity ratio of 34.35), shareholders should continue to be rewarded handsomely going forward.

Earnings are expected to come in at $0.94 in Q4 in CNA (Which would be a slight drop over the same period of 12 months prior) but next year, bottom-line growth of almost 17% is expected to result in $4.42 in earnings per share. CNA remains the bellwether for Loews so as long as its earnings can keep growing, this will provide the momentum to keep investing aggressively in existing subsidiaries as well as acquire new ones.

Conclusion

To sum up, the recent crossover of Loews' 10-week moving average above its 40 is a bullish technical sign all things remaining equal. Furthermore, shares do not look expensive from an earning or book-value standpoint due to management's sustained aggressive stance with respect to share buybacks. Let's see how what Q4 results can push on the share price from its present level to give us more confirmation. We look forward to continued coverage.

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