Genworth Financial Inc. fell the most in the Standard & Poor’s 500 Index after Morgan Stanley said the insurer’s efforts to sell units may hurt earnings.
“Breaking up is hard to do,” Morgan Stanley’s Nigel Dally and Laura Sanchez said in a note to clients Tuesday. Divesting units is likely to lead to “substantial earnings-per-share dilution, which we feel some investors may be overlooking.” They downgraded the stock to underweight from equal weight.
Genworth Chief Executive Officer Tom McInerney is reshaping the company after being burned by higher-than-expected costs on long-term care policies, which pay for home-health aides and nursing home stays. He is seeking buyers for a life-and-annuity business and said last month that he would consider selling the entire insurer.
Genworth dropped 5.6 percent to $8.64 at 4:15 p.m. in New York. Before Tuesday’s slump, the stock was up 7.6 percent since Dec. 31.
“Following better-than-expected first-quarter results, Genworth’s stock has surged higher and is now one of the best-performing stocks in our coverage universe year-to-date,” Dally and Sanchez wrote. “This is not warranted by any improvement in the fundamental outlook.”