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Genworth Financial (GNW) Up 11.5% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Genworth Financial (GNW). Shares have added about 11.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Genworth Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Genworth Financial Q2 Earnings, Revenues Top Estimates

Genworth Financial posted second-quarter 2019 adjusted operating earnings of 40 cents per share, which beat the Zacks Consensus Estimate by 60%. The bottom line was flat year over year.

Total revenues of Genworth Financial were $2.2 billion, up 1.3% year over year. The top line beat the Zacks Consensus Estimate by 3.8%.

Net investment income grew 2.8% year over year to $852 million attributable to favorable prepayment speed adjustments on mortgage-backed securities and inflation impact on U.S. Government Treasury Inflation Protected Securities (TIPS).   

Total benefits and expenses increased 1.8% year over year to $1.8 billion, primarily owing to higher benefits and other changes in policy reserves.

Segmental Results

U.S. Mortgage Insurance: Adjusted operating income of $147 million was up 7.3% year over year. Loss ratio was zero in the quarter against 8% in the year-ago quarter.

Canada Mortgage Insurance: Adjusted operating income was $41 million, down 10.9% year over year. Loss ratio remained flat year over year at 15%, as lower levels of new delinquencies, net of cures, was offset by higher average reserve per delinquency, primarily from Alberta.

Australia Mortgage Insurance: Adjusted operating income of $13 million was down 40.9% year over year. Loss ratio deteriorated 600 basis points, attributable to lower levels of earned premium from higher levels of policy cancellations in the prior year and seasoning of the in-force portfolio.

U.S. Life Insurance: Adjusted operating income was $66 million, up 15.8% year over year driven by higher income at Long Term Care Insurance and Life Insurance.
 
Runoff: Adjusted operating income of $9 million was down 30.8% year over year.  

Corporate and Other: Adjusted operating loss of $72 million was narrower than loss of $75 million incurred in the year-ago quarter

Financial Update
 
Genworth Financial exited the quarter with cash, cash equivalents and invested assets of $77.6 billion, up 6.4% from the level at year-end 2018.

Long-term borrowings of Genworth Financial totaled $4 billion as of Jun 30, 2019, up 0.5% from 2018 end.

Book value per share (excluding accumulated other comprehensive income) was $21.34 as of Jun 30, 2019, up 0.9% from 2018 end level.
 
Business Update
 
The deadline for the Genworth Financial and China Oceanwide Holdings Group merger has been extended to not later than Nov 30, 2019 with Genworth Financial agreeing to an eleventh waiver. This waiver and agreement also stated that Oceanwide has agreed to allow Genworth to solicit interest for a potential disposition of its interest in Genworth MI Canada Inc.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

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VGM Scores

At this time, Genworth Financial has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Genworth Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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