There are many ways to analyze, evaluate, and value companies and
they all have their particular advantages and disadvantages. As a
general rule, though, I don't think many investors will argue that in
order for a stock to be an attractive long-term investment candidate,
the company needs to earn its cost of equity (as opposed to its overall
cost of capital). That's a big problem for Genworth (NYSE:GNW),
as this struggling insurance company is likely looking at many years of
single-digit returns on equity versus a cost of equity that is in the
double digits.
Management has lost a lot of credibility and goodwill with its
various false starts and head fakes as it has tried to repair its
struggling long-term care business and improve its life and annuity
operations. The latest plan, centering around an attempt to isolate that
troubled LTC business, makes some sense, but successfully executing the
plan is far from certain. I think the company can generate the cash it
needs to manage its 2018 debt maturities, but the risks to shareholders
are mounting and although mid single-digit ROEs can support a fair value
that's 40% or more above today's price, more stress to the balance
sheet could conceivably wipe out much (if not all) of the value.
Read more here:
Struggling Genworth Not Close To Earning Its Cost Of Equity
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