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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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||-$6.14|
|MG Value based on 0% Growth||-$3.60|
|Market Implied Growth Rate||-7.50%|
|% 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
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2016|
|Long-Term Debt & Capital Lease Obligation||$4,405,000,000|
|Shares Outstanding (Diluted Average)||499,400,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.65|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||-$0.42|
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|
Other ModernGraham posts about related companies
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.