From TD Waterhouse.EEk! Opened down 3.5%
Jan 16 (Reuters) - General Electric Co will take a $6.2 billion charge in its fourth quarter results for a more than decade-old insurance portfolio covering long-term healthcare costs, the company said on Tuesday.
GE, whose shares sank 3.7 percent in premarket on the news, said the charge would rise to $7.5 billion when adjusted for Congress' newly-passed cut in corporate tax rates to 21 percent.
The company also said its GE Capital unit was now expected to make statutory reserve contributions - which insurers must hold against potential losses - of about $15 billion over seven years.
To fund the contributions, GE Capital will be suspending its dividend to the parent company for the "foreseeable future".
Still sticking to this....^^^Analysts were talking about GE and that the 2018 tax reduction puts GE in a worse position. GE is one of the Dogs of the Dow and may be poised for bounce in 2018, but I'm steering clear for now. I think it can go below $16 and may test $15, but I've been on wrong side of bet before.
Keep in mind that, with decreasing corporate tax rates starting in 2018, Q4 2017 was a good time for GE to re-assess its liabilities. I believe a few major banks also took charges against earnings in Q4 due to increasing their reserves for bad loans. There's always a range around possible values for insurance reserves and bad loan reserves and it wouldn't surprise me if companies chose to be more conservative in their assumptions for their Q4 results.
I worked for a GE sub in the property-casualty insurance business that they sold 10+ years ago. The acquiring company wanted nothing to do with the LTC business so GE kept it.
When I invest, I look at the CEO and board. Seems like the new CEO is finally taking ownership for the company and thankfully was raised during the Jack Welch era.
Unfortunately and fortunately, I bought back in the day at $18, sold at $30ish and then just recently bought back in before the news broke.
Depending on what they do with the spinoffs, it may have HUGE upside. Look at ABBOTT and ABBVIE, BAXTER and BAXALTA. Once the spinoffs happened, the base business took off since they could focus on profit and focus on the core businesses separately.
When I invest, I look at the CEO and board. Seems like the new CEO is finally taking ownership for the company and thankfully was raised during the Jack Welch era.
This is an interesting comment, what growth can be seen for GE when the CEO says they will have negative growth. If you mean value of the underlying assets perhaps I could understand that but there will be no growth in financial performance for a couple of years.
Let’s look at what they are saying: we will have 6-7 billion of cash flow, 4.2 billion will be for dividends and 3 billion for share buybacks, meaning they will utilize 100% of cash flow for those two financial gerrymandering which does zero for growth of the business. Additionally they will BORROW to pay their pension expenses, note one could also look and say they are borrowing to pay their dividend, but semantically let’s give them a break. They will be exiting businesses and have overcapacity issues.
How is this ANY different than what they have done for the past years, it is not, it is a downsizing of the previous strategy because cash flow has been cut in half and for anyone looking for this to work you are praying a subpar management team can find value with no funds with which to fix the actual business, a recipe for disaster. While GE as a business is probably worth 15-18 per share with this plan it would need to be near 12 to be a decent value because management is slowly destroying all it’s money making revenues by increasing debt while shrinking assets
I’ve never been one to try to catch a falling knife. Too many good companies out there.
GE stock just continues to make this call (end of December) more and more plausible.Analysts were talking about GE and that the 2018 tax reduction puts GE in a worse position. GE is one of the Dogs of the Dow and may be poised for bounce in 2018, but I'm steering clear for now. I think it can go below $16 and may test $15, but I've been on wrong side of bet before.
...Come to think about it, I am not much of an Welch / Immelt fan either.
Yep!I was never a fan of Welch. Back in 2000, he was regarded as a hero and model CEO. He got GE into financial business instead of staying an industrial company, and that sowed the seeds of destruction.
Back in 1999, Welch said “my success will be determined by how well my successor grows it in the next 20 years.” The verdict is now in.
In today at $16.25 I was planning on waiting for $8, but the plummet seems to have stalled for a bit. Hopefully I will be out at $18 and back in at $8.
From my perspective he listened to the McKinsey songs a bit too much. That got him into the financial part I believe. And he took the LEAN thing too far, outside areas and applications where it fits great.