We recently maintained a Neutral recommendation on Leucadia National Corporation (LUK), expecting the company to perform in line with the market.
We believe the company largely benefits from its extensive diversifications into a variety of businesses including manufacturing, oil and gas drilling services, gaming entertainment, real estate activities, medical product development operations and various other investment activities.
Moreover, Leucadia’s strategy to grow through acquisitions of companies in crisis augments the company’s profitability. Of late, Leucadia added one of the largest beef processing companies in the United States, National Beef Packing Company, LLC, to its portfolio. Post acquisition, National Beef became a subsidiary of Leucadia.
However, the industries in which Leucadia operates are vulnerable to general market conditions. The company’s array of businesses including real estate, manufacturing, oil and gas drilling services, and gaming entertainment were adversely impacted due to economic downturns in the recent past. Also, Leucadia’s investments in volatile materials such as base metals reduce the value of its investments.
Recently, the company reported disappointing fiscal year 2011 results with the net earnings falling drastically to 7 cents per share from $7.66 per share reported in the fiscal year 2010. The company’s top line, however, fared well recording a 19% year–over-year increase. Intense competition from its peers including Apollo Investment Corporation (AINV) and The Blackstone Group (BX) also raises concerns for the company.
The current Zacks Consensus Estimate for the first quarter of 2012 is 40 cents, representing annual growth of 700.0%. Estimates for the fiscal year 2012 and 2013 are $1.58 and $1.59, respectively.
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