Genworth Financial: Subprime Woes May Even Help This Insurer - Barron's

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Protecting the World -- and Boosting Profits by Sandra Ward

Summary: Concerns over its mortgage insurance portfolio in the face of a subprime crisis have seen Genworth Financial (GNW) shares underperform other insurers, despite consistent strong growth and earnings beats. It's true that Q1 net income fell 3% and EPS of $0.70 missed expectations of $0.77, but its mortgage insurance has relatively light subprime exposure. Its 10x 2008e earnings multiple trails the industry by 13%, and its 1.2x book value multiple makes for a 28% discount. Genworth forecasts 15-20% 2007 growth in its mortgage business (up from 9%) due to the merger of two rivals (which has some lenders concerned about overexposure) and, ironically, due to subprime woes which have lead to reduced refinancing, keeping policies in play for longer. Management foresees 8-10% revenue growth and 12-15% earnings growth over the next three years on $200 million in cost savings and reallocation of capital to higher return areas. Olstein analyst Tim Kang sees shares up 24% in the next 1.5-2 years.

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