Sandler O'Neill & Partners Tuesday upgraded its ratings on Genworth Financial, calling the company a "buy" because its share price is declining as a result of its U.S. mortgage insurance business.
The weakness in the stock price spurred Sandler to call for the upgrade.
In a new report, Sandler O'Neill says investor concerns about the MI business are "warranted but overblown." It has a pessimistic near-term view of the business, although it added that the MI unit should return to profitability by late 2012.
Genworth's shares declined by 7% Monday when the market reacted negatively to a larger than expected 2Q loss from MGIC Investment Corp., the nation’s largest MI.
Sandler analysts added, "this loss suggests that Genworth (and other mortgage insurers) could have worse second quarter earnings than the Street is expecting."
Still, Sandler believes that Genworth, as a whole, is diversified, with its U.S. MI business contributing just 10% of premiums and 7% of total revenues. Its analysts believe the company is trading at a discount to its competition in the life insurance business.
