We reiterate our Neutral recommendation on
Genworth Financial Inc
) following mixed third-quarter 2013 results, a slightly lower
profit expectation from International Mortgage Insurance and
softer long-term care sales. The life insurer presently carries a
Zacks Rank #3 (Hold).
Why the Reiteration?
Genworth's third quarter operating earnings per share fell short
of the Zacks Consensus Estimate but was a couple of cents above
the year-ago level. The top line however, missed on both counts.
The Zacks Consensus Estimate for 2013 moved south 3.5% over the
last 60 days to $1.10 while for 2014 it moved down by 2.1% to
Due to the introduction of new products and pricing changes in
the U.S. Life Insurance Division, Life insurance sales slipped
72% year over year in the first nine months of 2013, while
long-term care insurance sales decreased 31% year over year.
Genworth estimates long-term care sales to trend down in the near
term, given these changes.
Genworth expects operating earnings to be weighed upon by
continued low interest rate environment. Genworth expects
consolidated operating earnings per share from after-tax spreads
will be down by 7 cents in 2013 and 11 cents per share in 2014 if
the investment yields and asset allocation strategies, through
2015, do not change.
Adjusting for the impact of foreign exchange, management
estimates 2014 International Mortgage Insurance segment profit to
be lower by 10% to 15% from 2013 level.
Counting on positives, for the sixth consecutive quarter, the
mortgage insurance segment generated a profit. Total flow
delinquencies declined 24% year over year, and new delinquencies
fell 19% year over year. 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 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 $200 to $300 million of additional annual premiums 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.
Other Stocks to Consider
Some better-ranked stocks in the same sector include
StanCorp Financial Group Inc
American Equity Investment Life Holding Co.
Reinsurance Group of America Inc
). While StanCorp sports a Zacks Rank #1 (Strong Buy), American
Equity and Reinsurance Group carry a Zacks Rank #2 (Buy).
AMER EQUITY INV (AEL): Free Stock Analysis
GENWORTH FINL (GNW): Free Stock Analysis
REINSURANCE GRP (RGA): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
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