Insurance provider Genworth Financial, Inc. (GNW) is a leading supplier of diversified insurance products that include long-term life insurance and mortgage insurance. While the rising demand for mortgage insurance has allowed GNW to book higher revenues, a high level of insurance policy cash-outs has increased the company’s outflow. Thus, the shares of GNW have lost 3.6% over the past year, and 6.9% year-to-date.
Ageing populations across developed economies and rising long-term costs have been increasing the demand for GNW’s products. But, with the global healthcare crisis (COVID-19 pandemic) increasing the number of insurance payouts in recent months, GNW’s growth potential looks bleak.
Here’s what we think could shape GNW’s performance in the near term:
Cost of Long-Term Care
According to Genworth’s 2021 annual cost of care survey, average assisted living facility rates have increased 6.2% year-over-year to a median $51,600 cost per year. The rising cost of this care can be attributed to a shortage of workers and rising demand, rising operational costs, and higher recruiting and retention costs. These costs have been aggravated by the pandemic because workers, concerned about the exposure to COVID-19, have shied away from the sector. Also, the supply of PPE kits has introduced a new cost. Sixty two percent of survey respondents predict that they will be forced to raise workers’ wages over the next six months. They say they expect the wage increase to be at least 5%.
While the overall increase in costs is expected to create higher demand for long-term care insurance products, the premium for such policies is expected to be high.
Depressed Profit Margins
GNW’s 14.3% trailing-12-month gross profit margin is 74% lower than the industry average 54.99%. Its net income margin of 2.06% is 91% lower than the industry average 22.87%. The company’s trailing-12-month EBITDA margin and asset turnover ratio of 14.71% and 0.08%, respectively, are significantly lower than industry averages.
Also, the company’s ROE, ROA and ROTC values are lower than the respective industry averages.
Mixed Growth Estimates
A consensus revenue estimate of $1.90 billion for the current quarter, ending June 2021, represents an 11% decline year-over-year. Moreover, analysts expect GNW’s annual revenues to decline 9.7% to $7.82 billion in fiscal 2021. The company’s revenues are projected to rise marginally next year to $87.89 billion.
However, GNW’s EPS is expected to rise substantially in the near term. The Street expects GNW’s EPS to rise 125.6% in the current quarter, 154.3% in the current year, and 14.6% next year. Also, the company’s EPS is expected to rise at a CAGR of 5% over the next five years.
POWR Ratings Reflect Uncertain Prospects
GNW has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
GNW has a C grade for Quality, and D for Momentum. The company’s negative profitability and declining share prices justify these grades.
GNW is ranked #16 of 31 stocks in the C-rated Insurance – Life industry. In total, we rate GNW on eight different levels. Beyond what we’ve stated above, one can check out additional GNW Ratings for Sentiment, Stability, Growth, and Value here.
Click here to view the top-rated stocks in the Insurance – Life industry.
Bottom Line
We think that GNW’s poor growth prospects soon make it a risky investment bet. While the life insurance industry is expected to grow in the future given the ageing global population, investors should wait until the pandemic is over before investing in the stock.
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GNW shares were trading at $3.52 per share on Thursday afternoon, down $0.02 (-0.56%). Year-to-date, GNW has declined -6.88%, versus a 11.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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