This is interesting. One of Genworth's ($GNW) three primary businesses is mortgage insurance. The other two businesses are life/annuity and long term care.
Radian ($RDN) and MGIC ($MTG) primarily provide mortgage insurance.
The following table compares the key financial metrics of each company:
|Price||P/B||P/S||Forward P/E||Div %|
Now it is important to note that GNW's mortgage insurance arm is quite profitable as are RDN and MTG.
It is also important to note that GNW's life/annuity arm is also profitable even though its profit levels have been declining.
What this means is GNW, when compared with RDN and MTG, is being significantly impacted by its long term care arm. The street is essentially giving long term care no value and expecting further losses from long term care.
Question: Is this a reasonable assessment? Is the disparity in the financial metrics between the above companies reasonable?
One way to make this determination is by determining what percentage of net income comes from mortgage insurance when compared with all income from all of its business segments combined.
In the 2Q GNW's total net income was about $167M, of which $110M was from the mortgage insurance arm. This equates to about 65%.
So if GNW's book value is about $27/share then one would think that the stock would trade at at least $18/share (65%) solely taking into account the mortgage unit.
I realize that my calculations and thesis do not take into account several items. This is simply a cursory analysis.
I believe that there should certainly be little value given to long term care until it can be shown that this unit can be profitable on a consistent and stable basis. With that being said, the disparity between GNW and RDN/MTG above does not appear to make sense.
Disclosure: I am/we are long GNW.