UPDATE: Morgan Stanley Sees Risk Outweighing Reward for Genworth, Downgrades to Underperform

In a report published Monday, Morgan Stanley analyst Nigel Dally downgraded

from Equal-weight to Underweight and set an $18.00 price target. Dally remarked that Genworth has stabilized its operations but sees several risk factors in the core business. The analyst wrote, "Genworth remains a turn‐around story, where its fundamental improvement revolves around improved MI profitability, pushing through price increases in LTC, and completing the partial IPO of its Australian operations. In our view, these catalysts are already fully reflected in the valuation." Morgan Stanley added that new GSE eligibility could cost the company $0.2-0.5 billion to its domestic MI operations. With increased competition, rising interest rates, unlikely buybacks, and the Australian IPO dilution, Dally downgrades the company to Underweight. The analyst estimates that EPS will come in at 10-15 percent below consensus at $1.28 and $1.45 for 2014 and 2015, respectively. Shares of Genworth closed at $17.64 on Friday. In premarket trading, the stock fell as much as 3 percent to $17.12 before rebounding by a percent to $17.27.