The stock of leading insurance company Genworth Financial, Inc. (GNW) has gained 104.3% over the past nine months to close yesterday’s trading session at $4.29. This can be attributed primarily to its increase in newly underwritten policies. And record low interest rates have spurred demand for its mortgage insurance, especially among first-home buyers.
However, the stock is currently trading 9.9% below its $4.76 52-week high. After years of uncertainty, this month the company terminated its merger agreement with China Oceanwide Holdings Group Co., Ltd.. GNW announced on May 4 that Genworth Mortgage Holdings has commenced an IPO and is expected to trade on the Nasdaq Global Select Market under the ticker symbol ‘ACT.’ The company is expected to be rebranded as Enact Holdings, Inc.
While the company’s underwriting performance is expected to improve this year due to a better employment and housing market outlook, analysts don’t expect GNW to report convincing revenues and earnings in the near term. So, the stock’s near-term prospects look uncertain.
Here are the factors that we think could influence GNW’s performance in the coming months:
Robust Recent Financials
GNW’s top line surged 9.7% year-over-year to $1.99 billion for its fiscal year 2021 first quarter, ended March 31. Its revenue from premiums, which accounted for nearly 50% of its total revenue, increased 2.3% year-over-year to $968 million.
Its income from continuing operation for the quarter was $174 million compared to $60 million loss from operations in the prior-year period. Its net income also came in at $195 million compared to $72 million net loss in the year-ago period. And the company’s EPS for the quarter was $0.37 compared to loss per share of $0.13 in the prior-year period.
Termination of Merger with China Oceanwide
GNW exercised its right to terminate its merger agreement with China Oceanwide Holdings Group Co., Ltd in April. The company had been trying to execute the merger since 2016. James Riepe, non-executive chairman of the GNW’s board of directors, said, “Genworth's board of directors has concluded that Oceanwide will be unable to close the proposed transaction within a reasonable time frame and that greater clarity about Genworth's future is needed now in order for the company to execute its plans to maximize shareholder value.”
Its wholly owned subsidiaries Genworth Financial International Holdings, LLC and Genworth Holdings, Inc. sold their entire positions in Genworth Mortgage Insurance Australia Limited on March 3, 2021.
Unfavorable Analyst Estimates
Analysts expect GNW’s revenue to decline 11% for the current quarter, ending June 30, 2021, 19.2% for the quarter ending September 30, 2021 and 9.7% in its fiscal year 2021. Its EPS is expected to decline 74.4% year-over-year to $0.21 for the quarter ending September 30, 2021.
Wall Street analysts expect the stock to hit $2.50 in the near term, which indicates a potential 41.7% decline. Also, all three analysts that have rated the stock rated it Hold.
POWR Ratings Reflect Uncertain Near-Term Prospects
GNW has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. GNW has a C grade for Quality. This is in sync with its 17.4% trailing-12-month gross profit margin, which is lower than the 56.4% industry average. It also has a C grade for Stability.
The stock has a D grade for Sentiment, consistent with unfavorable analyst sentiment regarding its future financials.
GNW is ranked #22 of 32 stocks in the C-rated Insurance – Life industry. Click here to see the additional POWR Ratings for GNW (Momentum, Growth and Value).
Better than GNW: Click here to access four top-rated stocks in the same industry.
Bottom Line
GNW’s near-term outlook seems to be uncertain because it failed to materialize its merger with China Oceanwide after years of trying and sold its interest in Genworth Mortgage Insurance Australia. While the stock could perform well in the long run because its underwriting performance is expected to improve amid the low interest rate environment, we think it’s wise to stay away from the stock until there is more certainty in its financials.
GNW shares were trading at $4.32 per share on Wednesday morning, up $0.03 (+0.70%). Year-to-date, GNW has gained 14.29%, versus a 11.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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