Genworth Financial 2014 Annual Valuation $GNW

Genworth_Financial_logoIn the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to widdle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  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.  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 specific look at how Genworth Financial fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Genworth Financial, Inc. (Genworth) is a financial security company. The Company provides insurance, wealth management, investment and financial solutions. As of December 31, 2011, the Company had more than 15 million customers, with a presence in more than 25 countries. The Company operates in Insurance, Mortgage Insurance and Corporate and Runoff. The Mortgage Insurance Division includes the business segments, such as International Mortgage Insurance and U.S. Mortgage Insurance. The Corporate and Runoff Division includes the Runoff segment and Corporate and Other activities. In September 2013, Genworth Financial, Inc closed the sale of its Wealth Management business, including Genworth Financial Wealth Management and alternative solutions provider, the Altegris companies, to a partnership of Aquiline Capital Partners and Genstar Capital.

GNW Chart

GNW data by YCharts

Defensive Investor – must pass all 6 of the following tests: Score = 3/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend - FAIL
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $17.30
MG Value $35.52
MG Opinion Undervalued
Value Based on 3% Growth $13.38
Value Based on 0% Growth $7.84
Market Implied Growth Rate 5.13%
PEmg 18.75
PB Ratio 0.55

Balance Sheet – 3/31/2014

Total Debt $7,419,000,000
Total Assets $109,765,000,000
Intangible Assets $1,193,000,000
Total Liabilities $94,250,000,000
Outstanding Shares 496,000,000

Earnings Per Share

2014 (estimate) $1.30
2013 $1.15
2012 $0.65
2011 $0.25
2010 $0.29
2009 -$0.88
2008 -$1.32
2007 $2.58
2006 $2.82
2005 $2.52
2004 $2.34

Earnings Per Share – ModernGraham 

2014 (estimate) $0.92
2013 $0.59
2012 $0.14
2011 -$0.02
2010 $0.13
2009 $0.41


Genworth Financial does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the lack of earnings stability or growth over the last ten years, and the lack of dividend payments.  The Enterprising Investor is concerned by the lack of dividend payments.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of JP Morgan Chase (JPM) and ModernGraham’s valuation of Wells Fargo (WFC).  From a valuation side of things, the company does appear undervalued after growing its EPSmg (normalized earnings) from $0.13 in 2010 to an estimated $0.92 for 2014.  This level of growth outpaces the market’s implied estimate of 5.13% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value well above the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Genworth Financial (GNW)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Genworth Financial (GNW) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.

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