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 Genworth Financial (NYSE:GNW) jumped more than 11% by 1:00 P.M. EST on the back of better-than-expected earnings, key business improvements, and the potential for it to sell assets, go private, or both.
So what: Genworth Financial has been hard hit by losses stemming from its long-term care insurance business, but this quarter showed signs of a turnaround. The company handily topped earnings expectations, earning $0.31 per share in the first quarter, well above the consensus estimate of $0.25 per share.
On its conference call, the company noted that it was making progress in firming up its long-term care business by working with state regulators on premium increases to offset rising insurance losses.
Securing premium increases would enable it to seek other strategic options. Tom McInerney, the company's CEO, pointed out that Genworth may consider the sale of its long-term care insurance business, or going private, though both options hinge on its ability to turn around its money-losing insurance lines. Its life and annuity business is also on the auction block, as executives confirmed that Genworth is "in the early stages" of discussions with potential suitors.
Now what: Even after today's rally, Genworth remains one of the cheapest companies in the financial industry. Shares trade for less than 0.3x book value, a sign that investors believe it hasn't adequately reserved for losses in its long-tail insurance lines, particularly long-term care. In the fourth quarter of 2014, Genworth took a $478 million post-tax charge to cover expected losses from long-term care contracts acquired decades earlier.
Selling some of its insurance lines would help shore up its balance sheet, potentially regain its investment-grade rating, and allow the company to "prove" its value to investors by inking a deal with a third-party for some or all of its assets.