Genworth still a Buy, says BTIG's Palmer • 11:58 AM
The loss in the company's mortgage insurance business in Q3 is a "hiccup," says Palmer, and it's the one unit at Genworth (GNW -1.6%) whose underperformance doesn't raise concern about the bigger and longer-term picture of higher profits and growing book value.
More important are growing profits in Genworth's Long Term Care unit (to $41M from $26M in Q2). "We believe the impact of the LTC rate increases in Q3 should be viewed as a preview of in force premium rate increases to come ... The contribution from such increases to be realized in FY14 is a key part of the bridge to higher FY14 earnings."
BTIG's Mark Palmer things Genworth's (GNW +1.8%) stock price is not yet reflecting earnings growth which is poised to accelerate. Here's four factors he's looking at:
The U.S. mortgage insurance unit needs to increase its contribution to company profit by $100M, and can thanks to profitable new business crowding out legacy positions. The improving U.S. housing market and retreat of the FHA from mortgage insurance should help as well.
Expense reductions tied to June's announced 400 job cuts.
Benefits from recently and to-be-implemented rate increases.
Retirement of $500M in 5.75% debt due in 2014 should provide about $28M in interest savings.
He sees FY14 EPS of $1.62 vs. consensus at $1.43.