GE opens its kimono and gets kicked where the sun don't shine
Filed under: Company News
General Electric Company (GE) took a calculated risk Thursday when it invested six hours in discussing the performance and prospects of its finance unit, GE Capital. As I posted, the move was risky and with its stock down 1.8 percent Thursday and seven percent more today, it's not obvious that the move generated a short-term payoff for GE shareholders.
I would give GE a B for at least trying to be more open about GE Capital. GE management must have concluded that its stock had no chance of rising as long as investors viewed its finance unit as a black box full of toxic waste. GE did a good job of providing details about what was on GE Capital's books. But analysts concluded that its economic assumptions -- and therefore its earnings forecast -- were overly rosy.
And today, they lowered their forecasts for GE earnings based on what they thought were more realistic assumptions. Credit Suisse expects GE Capital to earn $2 billion rather than the $5 billion that GE said it will earn. And Credit Suisse lowered its GE target price to $11 from $13 and its 2009 earnings estimate by 13 percent to $1.05 from $1.20. UBS rates GE at Neutral and warned of "substantial remaining risk" – including a $38 billion leveraged loan portfolio – and said 2010 could be even worse than 2009 for GE Capital.
Over the longer run, GE's openness could help it generate some credibility with analysts -- but in the short run those lowered earnings estimates have got to hurt.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns GE shares.
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Reader Comments (Page 1 of 1)
3-21-2009 @ 12:24PM
Ron said...
Another fiasco. This management team just can't get it right...and it goes back a long time. Just look at a ten year chart. How long will it take for some managerial changes?
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3-21-2009 @ 2:01PM
Bub said...
GE needs Jack back on the job--Am I right?
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3-21-2009 @ 4:19PM
dave said...
Great Company GE I just bought 3500 common shares for my grandchildren which I am sure will pay their college tuition.
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3-21-2009 @ 7:21PM
pete said...
Everyone must remember 1 thing when a year ends with a zero ( 2010) look out below they are horrible 1990 a disaster and 2000 a disaster . good luck !
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3-22-2009 @ 6:00AM
Nick G said...
If would compare this to any bank, they are in solid shape. You can also argue that their core industrial portfolio is well hedged with high energy/health infrastructure and should do okay the next few years and cash-flow to support a $15+ stock price.
However, GE has lost all the investors that believed in them and is unlikely to get them back until they hit earnings quarter after quarter...
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3-22-2009 @ 2:22AM
BHarrison said...
These corporations are "going to have to take a hit" when they divulge the truth; that is just part of the "recovery process".
However, once they have revealed the truth behind their financial reports and "taken the temporary hit" to their market value, then they can "move on" and begin recovery. The only way to restore investors' "faith and confidence" in the corporation is by INSTILLING INTEGRITY into their finacial statements.
One of our principle problems has been management's overly concern with the short term quarterly reports of profits without regard to the long term ramifications. A big part of the economic melt down was the previous practices of using any means to boost, or to maintain those short term profits. Once the corporations financials are re-valued to a realistic market value, investments will begin to increase.
The losses that are going to be absorbed in these market adjustments are unavoidable; it is a natural adjustment for the previous overevalutions of stock values.
This is all so reminescent of the fable about "The King's clothes . . . " Everyone should have known that the stocks and property values were too high; but no one wanted to believe it. Congress and the CEOs of the major financial institutions are the PRIMARY CULPRITS in all of this; they led the parades to create these BLATANT FRAUDS . . . most of it was somewhat of variations of Ponzi schemes . . . they just kept repackaging almost worthless fianancial papers and jacking up the book values . . . . and everyonoe went along with it.
There were some (a few) Congressmen and experts who treid to warn about what was happening; but most Congressmen totally ignored those warnings . . . and THOSE are the Congressmen who should be removed from Congress.
The CEOs were like "Madoff", they were into the frauds so deep that they could not personally afford to admit to the truth; so they just continued to run the scams and FRAUDS . . . . all of these CEOs, CFOs, and upper management should be purged from our business enterprises also.
How can our nation achieve "recovery" with those who created this economic debacle and FRAUDS "leading any recovery efforts"? The answer is that it can't be done with those individuals . . . they have too much of a vested interests in covering up their "sins of the past"; and they are PROVEN FAILURES at having the INTEGRITY and ETHICS or the management skills to lead our corporations. It is time for NEW managment to take over these corporations; and NOT just a reshuffling of the old management amongst the corporations.
It is truly "time for substantial changes" both in Congress and in our corporate management.
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