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On Aug 26, we upgraded Genworth Financial Inc. (GNW - Analyst Report) to Neutral from Underperform on the back of its solid second quarter results. This life and mortgage insurer carries a Zacks Rank #3 (Hold).

Why the Upgrade?

On Jul 30, Genworth Financial reported second-quarter 2013 net operating income of 27 cents per share. Though the results fell short of the Zacks Consensus Estimate, it was well above the year-ago level of 14 cents. Genworth Financial delivered earnings surprise in 3 of the last 4 quarters with an average of 16.6%

During the reported quarter, Global Mortgage Insurance put up a robust performance, long-term care insurance witnessed progress on rate actions and the company garnered benefits from the expense reduction initiatives.

Given better performance in the first half, Genworth expects U.S. mortgage insurance to be profitable in 2013 and for 2014 to be marked by even better results.

In an effort to enhance its operational performance, in June this year, Genworth Financial decided to sever 400 positions. Genworth will have $80 to $90 million in annual pre-tax expense savings when the plan is fully implemented.

Additionally, in third quarter last year, Genworth filed for rate increases for its long term care in force premium. The company expects $200 to $300 million of additional annual premiums after full implementation over the next five years. As of Jun 30, 2013, it received approvals of approximately $115 to $120 million of the targeted premium increase.

The Zacks Consensus Estimate for 2013 and 2014 is currently pegged at $1.16 and $1.45 respectively. The estimates translate to a year-over-year increase of 43.6% and 24.4% respectively.

Other Stocks to Consider

China Life Insurance Co. Ltd. (LFC - Analyst Report) with Zacks Rank #1 (Strong Buy) and Lincoln National Corporation (LNC - Analyst Report) and StanCorp Financial Group Inc. (SFG - Analyst Report) with Zacks Rank #2 (Buy) are also worth considering.

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