Genworth Financial Inc (NYSE:GNW) opened with a gap up yesterday and rallied some more to end the day with a gain of 11.64%. The sharp rise came on the back of the first signs of turnaround visible in a long time after being hurt by losses stemming from its long term care insurance business. The consensus estimate for the earning was $0.25 per share, which was beat by the company by a wide margin at $0.31.
To offset rising insurance losses, Genworth Financial Inc (NYSE:GNW) has been working with state regulators on premium increases, a major step in the process of firming up its long term care insurance business. If they are successful at securing premium increases, it would enable the company to seek other strategic options like going private or the sale of its long term care insurance business but these steps depend on the ability of the company to turn the tide around. The company confirms that it is also in the early stages of discussion to sell its life and annuity business.
The cheap valuation of the company, even after this rally, may attract some investors but most of the market doesn’t believe that the company has adequate reserve for losses in its long tail insurance lines. The company had to take a $478 million post-tax charge in the last quarter of 2014, to cover expected losses from long term care contracts acquired decades earlier.
Technically, in the short term the stock must trade above $9 levels to keep the bullish sentiment intact. The stock has been stuck in the range of $7-$10 for the last 6 months and unless the barrier of $9 is not taken care of soon enough, the broader range may continue. The long term chart makes the bulls hopeful and as long as the price stays above $7, more upside can be expected in the next few months.
