Genworth: Growth Prospects Bright, Low Interest Rates A Drag

On Jun 14, 2016, we issued an updated research report on Genworth Financial, Inc. (NYSE:GNW) .

The life insurer’s first-quarter 2016 earnings outperformed the Zacks Consensus Estimate but declined year over year. The company recorded lower revenues owing to a decline in premiums and policy fees as well as an increase in expenses during the first quarter. Moreover, the company stalled sales of traditional life insurance and fixed-annuity products in the first quarter.

Genworth remains focused on its mortgage insurance business and on the process of separating long-term care businesses. In addition, the life insurer is strategically making divestments to streamline its businesses. Such asset sales are expected to improve performance, enhance financial and strategic flexibility, strengthen mortgage insurance, increase excess capital, earnings and return on equity (ROE) and restructure the US Life business.

Also, the company intends to rationalize costs for annual cash savings. This apart, Genworth expects annualized cash expense reductions of $150 million or more by second-quarter 2016.

Solid performance by the mortgage division has boosted the company’s dividend receipts. For 2016, Genworth expects dividends between $100 million and $150 million. However, the company’s capital management efforts could raise dividend to $200 million in 2016. Dividends from Canada and Australia are projected between $100 million and $150 million in 2016.

However, exposure to a low interest rate environment has been weighing on the company’s investment results, which is not expected to show substantial improvement any time soon.

Zacks Rank and Stocks to Consider

Currently, Genworth carries a Zacks Rank #3 (Hold). Some better-ranked life insurers are Manulife Financial Corporation (NYSE:MFC) , Health Insurance Innovations, Inc. (NASDAQ:HIIQ) and GWG Holdings, Inc. (NASDAQ:GWGH) . While both Manulife and Health Insurance Innovations sport a Zacks Rank #1 (Strong Buy), GWG Holdings holds a Zacks Rank #2 (Buy).

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