General Electric Company (NYSE: GE), one of the worst-performing U.S. blue-chip stocks of the past several years, says it will retroactively reduce its 2016 and 2017 earnings per share by 13 cents and 16 cents, respectively. News of restated earnings is just the latest in a string of difficult headlines for GE investors, and Wall Street experts have yet to see the light at the end of the tunnel for the company.
GE stock was down more than 3 percent on Monday morning.
GE’s restated earnings result from a shift in the company’s accounting standards, which are under investigation by the Securities and Exchange Commission. The SEC probe is focused specifically on long-term service contracts. GE reported a $6.2 billion charge in the fourth quarter to help beef up its insurance reserves.
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In the same filing on Friday, GE reported that it could be subject to legal action by the U.S. Department of Justice related to GE Capital’s subprime mortgage lending practices.
GE stock is down more than 51 percent in the past year, trading below $15 per share for the first time since 2011. In the past year, investors have suffered through guidance reductions, a dividend cut and a long list of analyst downgrades.
GE has said it plans to sell $20 billion in assets as part of its new restructuring plan. Unfortunately, earnings restatements and accounting investigations are not the best way for a company to go about rebuilding investor confidence.
Berkshire Hathaway ( BRK.A, BRK.B) CEO and insurance guru Warren Buffett says GE management dropped the ball. Berkshire held more than 10 million shares of GE stock as recently as last year.
“Clearly there were mistakes made,” Buffett said on CNBC Monday morning. “There’s a lot of flexibility when you’re booking either construction in progress or potential service contracts … I would say the accounting at GE has not been a model at all in recent years.”
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Earlier this month, Barclays analyst Julian Mitchell said there is still very little clarity about the future for GE investors.
“While the weak share price performance and very negative sentiment towards the name make it screen attractively, we think there are still too many material downside risks and the upside potential in the absence of a major new power cycle is not compelling, given the stretched balance sheet,” Mitchell says.
Barclays has an “equal-weight” rating and $16 price target for GE stock.
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When Does the Bleeding Stop for General Electric Company (GE) Stock? originally appeared on usnews.com
