Why Genworth Financial Shares Spiked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of wealth management and financial solutions provider Genworth Financial (NYSE: GNW  ) spiked as much as 14% after announcing plans to separate its mortgage insurance business.

So what: The plan revolves around the company's primary insurance subsidiary, Genworth Mortgage Insurance Co., or GMICO, and is meant to reduce risk-to-capital by 12-15 points, decrease the likelihood of it needing any near-term cash, and allow it to continue to underwrite new business. The details include: transferring ownership of its European-owned insurance subsidiaries to GMICO, forming a "NewCo." type company if conditions arise in order to write new business, and implementing a legal entity reorganization ultimately freeing GMICO from being covered by the indenture that covers the company's senior notes.

Now what: This is definitely a step in the right direction for Genworth in terms of cleaning up its operations, but it still has a long way to go. Relative to valuation, at just seven times forward earnings, it could have more room to run, but I'd much prefer to wait until the latest round of earnings to hear what CEO Kevin Schneider has to say about the growth prospects for Genworth and the sector as a whole.

Craving more input? Start by adding Genworth Financial to your free and personalized Watchlist so you can keep up on the latest news with the company. 

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  • Report this Comment On January 16, 2013, at 6:09 PM, Mega wrote:

    This news doesn't really matter in my opinion. They're already better capitalized than most MI insurers, but they trade at 25% of book versus the average MI insurer at 65%.

    Genworth's bigger problem is improving life/LTC which makes up the majority of their business. Again they trade at 25% of book value versus the average life insurer at 60%.

    They bottom line is that the price is crazy. If they can continue to be a mediocre insurer (as opposed to horrible), shareholders will have huge gains.

    "I'd much prefer to wait until the latest round of earnings to hear what CEO Kevin Schneider has to say about the growth prospects for Genworth and the sector as a whole."

    If you're looking for growth you're definitely in the wrong place. Growth would be an insanely bad idea (as major holders have made clear to management). When they reach their capital goals, they should start buying back stock.

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