A new era has dawned on insurance companies. It’s not enough to simply remember when the company was solid. Whether it’s still a solid company or not, it’s now all about what is their value proposition as an insurance company? This is where Genworth Financial, Inc. (NYSE: GNW), come in. The company focuses on underwriting services, financial products, and services that helps secure the future financial wellness of its customers. From mortgage products to retirement services, the company has a presence all over the globe.
Genworth makes a fortune off the fixed income investors that have now become extinct, and the money they earn has been great for the last ten years. That’s a long time for a stock, and the stock appreciation has also been outstanding with an 84% increase over the past year. That’s the kind of growth and performance that even tech companies drool over.
Genworth stands out as a boring stock that has worked very well for its investors. After an 8 year period of rich speculation, investors all the way from Google’s Larry Page to Amazon’s Jeff Bezos are now looking at Genworth Financial, Inc. (NYSE: GNW) and wondering how the stock has gotten this far in a market that shows no signs of slowing down.
The Genworth Specialty Homeowners business is the most profitable division within Genworth, delivering $542 million and a 25% operating margin in 2018. This segment has consistently provided the company with significant revenue by performing servicing work for insurance customers. The insurance industry is expected to grow at 7% per year, compared to the 1% that insurers traditionally make from premiums and 2% earned through regulation. Genworth has been able to handle this growth and still maintain their fourth highest equity tier across Wall Street.
Genworth’s market is still dominated by companies with $10B+ market cap, but interestingly Genworth has $2.4B of market cap and is projected to grow their market size by a third. The $12B of revenue generated in 2018 will drop to $10B in 2020, but Genworth is still projected to reach $4.6B in revenue by that same year, a 41% increase.
Chief Executive Officer Michael Crowley is best known for his mid-90s shakeup of Genworth’s financial operations and revitalization of the company, providing a moat for investors to be bullish on. Under his leadership, the company transitioned from liability related operating lines to a mortgage security provider, a true diversification strategy that continues to pay off today.
The stock is focused on financial markets and will expand on their recent partnerships with FanDuel and DraftKings, which could expand gaming into the Asian market and further expand Genworth’s exposure to customer operating lines. Moreover, Genworth Financial, Inc. (NYSE: GNW) has been partnered with numerous Australian banks as a finance partner. FanDuel and DraftKings might be Genworth’s current business line, but the partnerships with these banks are looking to expand Genworth’s foothold further.
One possible roadblock for Genworth stock will be the return of regulation from the Commodity Futures Trading Commission (CFTC) at any time. If a sizable amount of regulations are enforced, this would hurt Genworth’s revenue and stock price. Ultimately, the implementation of these regulations should not materially affect Genworth or the markets it operates in.
The company currently has $3.3B in shareholder returns planned for 2019, and after the recent earnings call, the company announced a $100 million share repurchase. Genworth has $791 million in operating cash flow coming from 2018, they also have $880 million of long-term debt, leaving the company with $3.6 billion in total. The purchase of $100 million in shares will reduce the shares outstanding and increase earnings per share. The return of the shareholder policy should also be added to the mix to consider the stock’s investment value. This will take away some of the uncertainty that the investors might have in the company. As the rules of the markets stabilize in 2019, investors can expect Genworth’s revenue growth to extend over the next few years.