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Genworth Financial (GNW) Down 7.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Genworth Financial (GNW). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

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

Genworth Q3 Earnings Meet Estimates, Revenues Lag

Genworth Financial, Inc posted third-quarter 2019 adjusted operating earnings of 24 cents per share, in line with the Zacks Consensus Estimate. The bottom line declined 17.2% year over year.

Total revenues of Genworth Financial were $2 billion, up 1.3% year over year. The top line however missed the Zacks Consensus Estimate by 5.3%.

Net investment income grew 4.6% year over year to $816 million driven by higher limited partnership income, favorable prepayment speed adjustments on mortgage-backed securities, and growth in invested assets.

Total benefits and expenses increased 1.7% year over year to $1.8 billion, primarily owing to higher benefits and other changes in policy reserves, acquisition and operating expenses, net of deferrals, amortization of deferred acquisition costs and intangibles.

Segmental Results

U.S. Mortgage Insurance: Adjusted operating income of $137 million was up 16% year over year. Loss ratio of 11% remained unchanged year over year.

Australia Mortgage Insurance: Adjusted operating income of $12 million was down 29.4% year over year. Loss ratio deteriorated 500 basis points, attributable to lower levels of earned premium from portfolio seasoning.

U.S. Life Insurance: Adjusted operating loss was $1 million, narrower than loss of $3 million incurred in the year-ago quarter due to higher losses at Life Insurance and lower income from Fixed Annuities.

Runoff: Adjusted operating income of $10 million was down 28.6% year over year.

Corporate and Other: Adjusted operating loss of $35 million was narrower than loss of $47 million incurred in the year-ago quarter.

Financial Update
 
Genworth Financial exited the quarter with cash, cash equivalents and invested assets of $1.6 billion, down 29% year over year.

Long-term borrowings of Genworth Financial totaled $3.7 billion as of Sep 30, 2019, almost unchanged year over year.

Book value per share (excluding accumulated other comprehensive income) was $21.38 as of Sep 30, 2019, down 0.2% year over year.
 
Business Update
 
Genworth and Brookfield Business Partners entered into an agreement on Aug 13, 2019. Per the agreement, Brookfield Business Partners will purchase Genworth's majority interest in Genworth Canada for CAD$48.86 per share. The total transaction value is approximately CAD$2.4 billion. The deal will enable the completion of Genworth’s acquisition by Oceanwide (the Oceanwide Transaction). In connection with the agreement, Genworth and Oceanwide entered into the 12th Waiver and Agreement to extend the merger agreement deadline to not later than Dec 31, 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -33.33% due to these changes.

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VGM Scores

At this time, Genworth Financial has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, 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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