General Electric (GE) stock was hit yet again Monday after a Wall Street analyst said its restated financials have put its 2018 profit forecast at risk.
Research by Goldman Sachs said the industrial giant’s earnings are almost certain to be slashed due to the changes. The company had said in an email to shareholders Friday it foresees “no impact” to its 2018 forecast from the restatement.
“While the restatements to GE’s 2016/2017 financials were more benign than bear case expectations, they were worse than GE’s prior guide,” analyst Joe Richie said in a research note. “We believe the impact of these changes (and) a weak core business mean that a cut to GE’s $1.00-$1.07 EPS guide is almost a certainty and could potentially happen as early as 1Q earnings.”
GE is scheduled to release first-quarter results on Friday, and CFO Jamie Miller said in February that full-year EPS is heading toward the low end of its $1-$1.07 forecast.
While Goldman is retaining a neutral rating on the Dow Jones industrial average component, Richie believes the risk/reward heading into earnings “remains negatively skewed.”
GE shares were down 1.2% at 13.33 on the stock market today. The stock is still tracking below both its 50- and 200-day moving averages, key technical supports. Rival Siemens (SIEGY) dipped 0.3%. Among Dow industrial peers, United Technologies (UTX) rallied 0.9%, and 3M (MMM) gained 1%. Honeywell (HON) added 0.4%.
The reduction in GE’s assets by $8.7 billion “appears to be a bigger-than-expected headwind,” according to Richie, who also pointed out that consolidated net debt of around $89 billion is now $15 billion higher than equity.
The company lost $164 billion in market value since the beginning of last year. It has been hit by weak demand for industrial equipment, management problems and cash-flow issues.
The S&P 500 component’s earnings restatement follow the industrial giant’s Jan. 1 adoption of a new accounting standard. It is tied to how companies recognize revenue from long-term customer contracts. The firm restated 2016 and 2017 results to make them comparable with 2018.
The new accounting standard and earnings restatement come amid an SEC investigation of GE’s contract accounting. But the company says the moves are “completely independent” of the probe.
General Electric said in February it expects a $4.2 billion charge as it switches to the new standard.
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