Shares of Genworth Financial Inc (NYSE:GNW) are getting getting hammered on Thursday, November 6th after the company disclosed that it had to increase its Long Term Care (LTC) reserves by $531 million following a recent review. Genworth shares are down more than $5 today, breaking below $9 for the first time since 2012.
However, Mark Palmer and Giuliano Bologna of BTIG EquIty Research argue that this drastic fall in Genworth’s share price is unwarranted, and the stock is likely to bounce back over the medium term. BTIG retained its Buy rating on Genworth, but reduced its target price from $22 to $16.
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
In a research report published today, the analysts note: “While the results of Genworth Financial’s long term care (LTC) claim reserve review provided this morning, as well as management’s comments about the expected erosion of active life margins as a result of an ongoing review of those exposures, are disappointing, we also believe that the approximately $3.2bn in the company’s market capitalization that has been erased since the LTC issues emerged in July more than reflects their actual impact on the company’s overall valuation.”
No need to raise additional capital
Of note, the BTIG analysts also say that it is unlikely that Genworth will need to raise more capital as a result of its current LTC issues, given its U.S. life unit which includes LTC remained strong at 445% as of September 30th, although down from 490% as of June 30.
Genworth’s core business remains strong
Palmer and Bologna also point out that Genworth Financial Inc (NYSE:GNW) core businesses continue to be profitable. “We believe the value of GNW’s non-LTC businesses, and particularly its mortgage insurance businesses, is significantly greater than what the current share price reflects.”
BTIG’s valuation of $16 for Genworth is based on 0.65x the company’s FY15E book value (excluding accumulated other comprehensive income [AOCI] per share of $24.25.