Market Overview

Analyst: Regulatory Response To GE Allegations Is Reassuring For Investors

Share:
Analyst: Regulatory Response To GE Allegations Is Reassuring For Investors

General Electric Co (NYSE: GE) stock initially took a big hit last week following accusations of rampant fraud by former Bernie Madoff whistleblower Harry Markopolos, but one analyst says the allegations seem a bit underwhelming upon closer inspection.

The Analyst

Bank of America analyst Andrew Obin reiterated his Neutral rating and $11 price target for GE.

The Thesis

Obin said the initial negative knee-jerk reaction in GE's stock to the accusations highlight just how skittish investors have become after years of negative headlines. Obin said the Kansas Insurance Department, which regulates GE’s long-term care insurance subsidiaries, issued a statement on the claims that should be very reassuring for investors. The Department referred to the allegations against GE as “fairly simplistic in nature” and said they “don’t appear to incorporate certain technical reserve considerations.”

Obin said the regulatory response is telling, and it’s extremely difficult to compare GE’s LTC insurance business to other insurers in the manner Markopolos does in his report.

“The report picks very specific blocks of policies, claiming these to be most comparable (i.e., a block of 21K from 207K Prudential policies, a block of 17K from 905K Unum policies). However, the diversity of contract terms makes apples-to-apples comparisons difficult,” Obin wrote in a note.

For example, Obin said about 99% of GE’s LTC policies lack a cash benefit option, which lowers their reserve requirements.

GE already plans to devote about $2 billion annually toward insurance reserves between now and 2024, and Obin values GE Capital at negative $10 billion. However, even with GE Capital weighing down overall valuation and the stock trading at an enterprise multiple discount to its peer group, Bank of America still estimates the stock has more than 25% upside from its current level.

Price Action

GE's stock traded lower by 2.6% to $8.44 per share Tuesday morning.

Related Links:

GE CEO Larry Culp Strikes Back, Buys 252K More Shares

What The Option Market Is Saying About General Electric Following Fraud Allegations

Photo credit: Momoneymoproblemz, via Wikimedia Commons

Latest Ratings for GE

DateFirmActionFromTo
Sep 2019Initiates Coverage OnEqual-Weight
Jul 2019DowngradesBuyNeutral
Apr 2019DowngradesNeutralUnderweight

View More Analyst Ratings for GE
View the Latest Analyst Ratings

Posted-In: Andrew Obin Bank of AmericaAnalyst Color Price Target Reiteration Top Stories Analyst Ratings Best of Benzinga

 

Related Articles (GE)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
MUCascendReiterates65.0
ALDRCanaccord GenuityDowngrades20.0
LEGHLake StreetInitiates Coverage On21.0
CHUGoldman SachsUpgrades13.2
STZBMO CapitalMaintains230.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Trading Daily
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com

Stocks That Hit 52-Week Highs On Tuesday

CBD For Pets: True Leaf Rolls Out Canine Supplements, Mary's Brands Announces Mary's Tails Products