MET MetLife Inc

We are downgrading our recommendation on Genworth Financial Inc. (GNW) to Underperform from Neutral as we expect the mortgage insurance business to remain under pressure.   

Genworth’s mortgage insurance business is experiencing losses as a result of the stressed economic conditions and elevated unemployment rates. Though the overall economy is showing signs of improvement, the unemployment rate is expected to remain elevated, which will further weigh on the company’s mortgage insurance business.

The first quarter also suffered from a higher year-over-year loss at the U.S. Mortgage Insurance segment. However, better results at Retirement & Protection and at International were a partial offset. The first-quarter operating income lagged the Zacks Consensus Estimate by a penny. 

Genworth’s investment portfolio remains another area of concern. The company experienced significant losses and impairments in its investment portfolio in the last several quarters. Management has taken steps to reduce investment losses. The equity market recovery also inspires our confidence.

However, we expect the company to experience modest investment losses and impairments in the next couple of quarters given its significant exposure to commercial mortgage loans and mortgage-backed securities.

Counting the positives, Genworth remains focused on fueling growth in its Retirement and Protection segment as well as the Wealth Management business through strategic acquisitions and divestitures. The company also scores strongly with credit rating agencies. Genworth’s capital bolstering initiatives, high-margin products, distribution expansion, improved pricing and strict underwriting standards as well as initiatives to launch new services augur well going forward.

Over the last 7 days, two out of 13 analysts covering the stock nudged the estimate downward. Over the last 30 days, three analysts lowered the estimate for the second quarter. For 2011, only 3 out of 15 analysts lowered the estimate over the last 7 days while 5 lowered it over the last 30 days. For 2012, four out of 14 analysts lowered the estimate over the last 7 days and over the last 30 days.

The Zacks Consensus Estimate for fourth-quarter 2010 is 24 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, 99 cents per share and $1.65 per share.

The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the shares over the near term.

Based in Richmond, Virginia, Genworth Financial offers a variety of products to customers in areas such as life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance through financial intermediaries, advisors, independent distributors and sales specialists. The company competes with MetLife, Inc. (MET) and Prudential Financial, Inc. (PRU).

 
GENWORTH FINL (GNW): Free Stock Analysis Report
 
METLIFE INC (MET): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
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