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Analyst Blog

On Jan 6, 2014, shares of Genworth Financial Inc. (GNW - Analyst Report) hit a new 52-week high of $16.01.

The momentum was driven by continued solid performance at the company, and increased focus on strengthening its operational results and balance sheet.

Genworth divested its wealth management business to better focus on capital generation, increase the financial strength and flexibility of the company as well as simplify the business model.

Additionally, for the sixth consecutive quarter, the mortgage insurance segment generated profits. Year-to-date loss mitigation savings were $439 million, well above the full-year target of $250 million to $350 million, as flow modifications remained strong.

Genworth also got approvals of approximately $155 to $160 million of the targeted premium increase for its long-term care in force premium from 31 states.  The company has also started filing for 6% to 13% rate increases on long-term care products. Genworth expects $250–$300 million of additional annual premiums (up from $200–300 million) when fully implemented over the next five years.

Genworth has been strengthening its financial position. The company addressed its debt maturities till Dec 2016. Issuance of $400 million in new debt and a new 3-year credit facility of $300 million increased financial flexibility of the company.

With respect to earnings trend, Genworth delivered positive earnings surprises in 2 of the past 4 quarters, with an average beat of 6.8%.

The Zacks Consensus Estimate for 2013 and 2014 is currently pegged at $1.10 and $1.43 respectively. These translate to respective potential year-over-year improvement of 35.5% and 30.2%. The expected long-term growth rate for the stock is 5%.

However, valuation for Genworth looks attractive. The shares are trading at a 37% discount to the peer group average on a forward price-to-earnings basis and at a 9% premium on a price-to-book basis. Return on equity, on the other hand, is 26% higher than the peer group average. The 1-year return from the stock of 90.6% is higher than the S&P’s return of 24.6%.

Genworth presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the life insurance sector include Lincoln National Corp. (LNC - Analyst Report), Protective Life Corp. (PL - Analyst Report) and Reinsurance Group of America Inc. (RGA - Analyst Report). All these stocks sport a Zacks Rank #2 (Buy).

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