Thursday, March 24, 2016

Seeking Alpha: Struggling Genworth Not Close To Earning Its Cost Of Equity

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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