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Genworth Financial (GNW) attracted some mixed attention Tuesday. While the insurance issue started off on the right foot with a price-target boost from KBW, the stock was then slapped with a credit-rating downgrade from Standard & Poor's.
Beginning with KBW, the brokerage firm adjusted its price targets on a slew of U.S. insurers Tuesday morning. In a note to clients, KBW explained that it's overweight on the insurance sector for 2010, because it expects a significant earnings recovery and a modest revenue rebound for the group.
Specifically, KBW raised Genworth's price target from $12 to $13. The new estimate implies expected upside of nearly 12% from Monday's close.
On a decidedly less optimistic note, ratings agency Standard & Poor's slashed its ratings on five U.S. mortgage insurers, including Genworth. S&P's rating on Genworth Mortgage Insurance Corp. was downgraded two notches to BBB- from BBB+. The outlook for the subsidiary is negative.
"Today's downgrades reflect our view that macroeconomic conditions appear to have had a more significant adverse impact on mortgage insurers than we had expected in April, when we conducted our last extensive review of the sector," noted S&P analyst Ron Joas.
As a result of these mixed notes, GNW was clinging to a fractional gain at last check. The insurance issue has rocketed to an impressive gain of 310.6% in 2009, but the shares have recently been stymied by resistance at the $12 level. This area has capped GNW's rally attempts since Oct. 15.
A steady influx of short selling could be keeping the security under pressure. Short interest on GNW rose by 22.8% during the past month, and increased by 13.6% during just the most recent reporting period. This bearish activity is likely creating a headwind for the shares, exacerbating their struggle with technical resistance.
During the near term, options-related pressure could also reinforce the stock's ceiling. In the newly front-month January series, heavy call open interest of 13,612 contracts lies overhead at the 12.50 strike. As expiration approaches, the unwinding of hedges related to this open interest could keep GNW suppressed.
In other words, it seems likely that GNW will continue to stagnate during the short term. That newly hiked price target from KBW is hardly unattainable, but the shares will need to muster more technical strength to break through multiple layers of looming resistance.
Elizabeth Harrow is a senior equities analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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