Genworth Financial, Inc. (GNW) shares surged even as the market plunged after it was disclosed that Highlands Capital Management has taken a 5.2% stake in the company. Highlands filed with the SEC that it seeks to continue discussions with management that could lead to the sale or spinoff of certain assets or businesses that Genworth owns. After the disclosure was released, Genworth shares went up about 10%, but there is reason to believe that the stock could be heading higher.
Genworth appears to be undervalued based on most metrics. It trades for about 6 times earnings, and well below book value, which is around $30 per share. The stock dropped substantially in May, after the company announced it would delay the initial public offering of its Australian mortgage insurance unit. Shortly thereafter, the CEO agreed to leave and the company has been searching for new management.
All this disappointing news, plus the general decline in the stock market, and news that Moody's was considering a downgrade of Genworth, brought the shares to touch the $4.80 low made last October. Moody's appeared concerned by the management change (lack of a permanent CEO) at the company, as well as losses in the mortgage insurance unit.
The news of the possible downgrade seemed to cast a dark cloud for about a day over the stock. Many investors might be aware that Moody's downgraded a number of banks recently, most of which promptly rallied after the downgrade. The market seems to have digested the "downgrade fear" and the stock could be poised to move higher when Genworth announces a new CEO.
As the rally on the Highlands news showed, this stock is undervalued and the shares appear poised to move on good news. With a new CEO announcement likely and activist investor Highlands Capital now involved, chances are the stock can continue to trend higher.
Key Data Points For Genworth:
- Current price: $5.43
- 52-Week Range: $4.80 to $12.55
- Dividend: none
- 2012 Earnings Estimate: 80 cents per share
- 2013 Earnings Estimate: $1.46 per share
- P/E Ratio: about 6 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.
Disclosure: I am long GNW.