Loews Corporation — 2023 Q4
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
[ The transcript was presubmitted by Loews Corporation. No live call was conducted for the fourth quarter earnings call. ]
Good morning. Loews finished 2023 with an outstanding fourth quarter, reporting net income of $446 million or $1.99 per share, which compares favorably to net income of $355 million or $1.49 per share in the prior year's fourth quarter. The increase of 26% was driven by higher underwriting and investment income from CNA and higher income from Boardwalk, partially offset by lower investment income at Loews parent company.
Every quarter, we encourage shareholders to send us questions in advance of earnings that they would like us to answer in our remarks. Please see below for the questions we have received, along with some additional questions we found relevant.
Lower interest rates are generally not favorable for the insurance industry as they impact future investment income. That said, interest rates are expected to remain substantially higher than they were during and right before the pandemic, which is a positive for CNA. CNA has also taken advantage of the higher interest rate environment in 2023 to lengthen the duration of its investment portfolio, which reduces reinvestment risk.
Jim, you mentioned that Loews is trading near an all-time high. How does that impact your share repurchase strategy?
We continue to believe that our shares trade at a discount to their intrinsic value and therefore share repurchases will remain a key component of our capital allocation strategy. Currently Loews has a market capitalization of $16.2 billion. When you subtract our $10.8 billion stake in CNA (which is a paltry ten times earnings) and our $800 million net cash position, the market is valuing our non-publicly traded subsidiaries at about $4.6 billion. That valuation is extraordinarily cheap when you consider that the sum of Boardwalk's EBITDA and Loews Hotels' Adjusted EBITDA is nearly $1.3 billion.
How much have you invested in the four new developments at Loews Hotels and when do you expect the earnings potential of those hotels to be fully reflected in the financial results?
Loews Hotels has substantially completed its equity investment of nearly $435 million in these four new developments. The total cost incurred for the four properties (including debt and partner equity) through the end of 2023 was $1 billion. Given the hotel company's strong internal cash flow generation, Loews Hotels self-funded the vast majority of its investment in these new projects, with the parent company contributing $38 million in 2023.
How is the regulatory environment impacting Boardwalk's growth prospects?
Current regulations and permitting requirements regarding new pipeline construction are extremely onerous, which inhibits development of new pipelines. On the positive side, the lack of new pipeline development generally increases demand for existing pipelines.
What is your outlook for the U.S. natural gas market and how does that impact Boardwalk?
We believe that natural gas will remain an essential component of the U.S. energy infrastructure due to its ability to fuel dispatchable electricity. As the country adds more renewables to the grid, the increased volatility in natural gas demand may actually create new pipeline storage revenue opportunities. Boardwalk's assets are also well-located to take advantage of demand growth in the Gulf Coast region. Not only are Boardwalk's assets located near LNG export terminals, but the company's pipelines may also be able to take advantage of coal to gas switching in the states it serves. For example, nearly 70% of Kentucky's electricity is still generated by coal-fired plants.
Are there any updates on the Boardwalk litigation?
As a reminder, in December of 2022 the Delaware Supreme Court reversed the Delaware Court of Chancery's ruling in favor of the former Boardwalk minority unitholders. As part of that decision, the Delaware Supreme Court remanded the three unresolved issues back to the Chancery Court. The Delaware Court of Chancery will hold a hearing in April of this year on those remaining issues.