Insurance Stocks

Genworth Financial Inc Valuation – August 2016 $GNW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Genworth Financial Inc (GNW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Genworth Financial, Inc. provides mortgage insurance products. The Company operates through five segments: U.S. Mortgage Insurance, Canada Mortgage Insurance, Australia Mortgage Insurance, U.S. Life Insurance and Runoff. Its U.S. Mortgage Insurance offers mortgage insurance products insuring prime-based, individually underwritten residential mortgage loans in the United States. Its Canada Mortgage Insurance segment offers flow mortgage insurance and also provides bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada. Its Australia Mortgage Insurance segment offers flow mortgage insurance and provides bulk mortgage insurance in Australia. Its U.S. Life Insurance offers long-term care insurance products in the United States. Its Runoff segment includes the results of non-strategic products, which are no longer sold.

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GNW Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of GNW – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,342,034,614 Fail
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -894.87% Fail
5. Moderate PEmg Ratio PEmg < 20 -6.50 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.10 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Fail
3. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

GNW value chart August 2016

EPSmg -$0.42
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth -$6.14
MG Value based on 0% Growth -$3.60
Market Implied Growth Rate -7.50%
Current Price $2.75
% of Intrinsic Value N/A

Genworth Financial Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.12 in 2012 to an estimated $-0.42 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Genworth Financial Inc revealed the company was trading below its Graham Number of $20.32. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -6.5, which was below the industry average of 16.56, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Genworth Financial Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

GNW charts August 2016

Graham Number $20.32
PEmg -6.50
PB Ratio 0.10
Dividend Yield 0.00%
TTM Dividend $0.00
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Long-Term Debt & Capital Lease Obligation $4,405,000,000
Total Assets $107,173,000,000
Intangible Assets $291,000,000
Total Liabilities $93,118,000,000
Shares Outstanding (Diluted Average) 499,400,000

Earnings Per Share History

Next Fiscal Year Estimate $0.65
Dec2015 -$1.24
Dec2014 -$2.51
Dec2013 $1.12
Dec2012 $0.65
Dec2011 $0.25
Dec2010 $0.29
Dec2009 -$1.02
Dec2008 -$1.32
Dec2007 $2.73
Dec2006 $2.83
Dec2005 $2.52
Dec2004 $2.36
Dec2003 $2.21

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$0.42
Dec2015 -$0.76
Dec2014 -$0.36
Dec2013 $0.57
Dec2012 $0.12
Dec2011 -$0.04
Dec2010 $0.11
Dec2009 $0.40
Dec2008 $1.35
Dec2007 $2.63
Dec2006 $2.38
Dec2005 $1.91
Dec2004 $1.38
Dec2003 $0.74

Recommended Reading:

Other ModernGraham posts about the company

Genworth Financial Analysis – 2015 Annual Update $GNW
15 Companies in the Spotlight This Week – 5/31/14
Genworth Financial 2014 Annual Valuation $GNW

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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