We are downgrading our recommendation on Genworth Financial (GNW) to Underperform as we expect the mortgage insurance business to remain pressured. The first quarter also suffered a greater year-over-year loss at the U.S. Mortgage Insurance segment. First-quarter operating income lagged the Zacks Consensus Estimate by a penny.
We expect that the elevated unemployment rate will continue pressuring the mortgage insurance business. Additionally, improvements in its other business lines are expected to be slow, given the economy's sluggish recovery.
Genworth s investment portfolio remains another area of concern. The company experienced significant losses and impairments in its investment portfolio in the last several quarters. Our six-month target price of $8.75 equates to 8.75x our earnings estimate for 2011.
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