KBW Analysts Update The Bull/Bear Case For Genworth

The brokerage listed six points in favor of a bull case:

1. Ownership transfer of GLAIC.
2. Divestment of GLAIC for $2 billion.
3. Expectation that 50–75 percent of the estimated $1.0billion–$1.5 billion sale proceeds to holding company.
4. Estimated $0.5 billion–$1.0 billion sale proceeds going in favor of GLIC subsidiary.
5. Spinning off GLIC to shareholders.
6. Debt payment of $1.5 billion–$2.0 billion thereby achieving its targeted level.

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"Valuing the mortgage insurance businesses at 5–10 percent premiums to current levels puts Canada at $2.90, Australia at $1.25, and the U.S. at $4.65 (9x2017E), totaling $8.80. $1.0–$1.5 billion of assumed life/annuity proceeds to the holdco equals $2–3. From this we subtract $5.70 of existing net holdco debt and arrive at a $5–$6 total value in this bull-case scenario," the lead analyst told clients in a research note.

In a bear case, the brokerage cited $20 billion LTC reserves that have the potential for downside risk due to continuous deterioration in claims and low interest rates. The company faces debt maturities in the years 2018, 2020 and 2020 that needed cash flow.

At time of writing, the stock lost $0.05, or 1.06 percent, to $4.68.

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