General Electric shares are poised to bounce back on Friday after a brutal rout as Wall Street analysts defended the stock against allegations from a prominent financial examiner and reiterated their faith in the chief executive officer.
Shares rose 4.1% in pre-market trading, following Thursday’s 11% decline that marked the steepest drop since 2008. William Blair analyst Nicholas Heymann questioned whether the whistleblower report is “the last Molotov cocktail” and said he does not believe GE’s financial statements purposely misrepresented the company’s financial condition and potential liabilities.
The report’s effort to portray GE’s financial condition with an assumption that charges worth about $38-billion should have been previously recognised was “at best disingenuous and at worst highly inaccurate,” he wrote.
Harry Markopolos, who was involved in exposing the frauds of investment manager Bernie Madoff, said in a report on Thursday that GE would need to raise its insurance reserves immediately by $18.5-billion in cash -- plus an additional non-cash charge of $10.5-billion when new accounting rules take effect. He also claimed that GE was hiding a loss of more than $9-billion on its holdings in Baker Hughes.
Markopolos said that the company’s cash situation was “far worse than disclosed in their 2018” annual report.
Citi analyst Andrew Kaplowitz said there were “sufficient shortcomings” in the report itself, and that he continued to believe in CEO Larry Culp’s ability to improve the company. Some of the allegations made in the report were already known and others were “known unknowns,” the analyst said, adding that the Baker Hughes write-off was already expected.
Baker Hughes shares were also indicated higher ahead of the market open, after closing at $20.71.