General Electric's $200M SEC Settlement Doesn't Deter This Analyst

General Electric's $200M SEC Settlement Doesn't Deter This Analyst

General Electric Company GE shares are up 85% in the past three months, and the company can finally put at least one of its lingering problems to bed.

What Happened? On Wednesday, GE agreed to a $200 million settlement with the SEC related to an ongoing investigation into its power and insurance businesses.

Bank of America analyst Andrew Obin said the $200 million settlement was larger than the $100 million GE had reserved, but it was still within the range of what he had anticipated. More importantly, Obin said the settlement officially ends all ongoing investigations, letting GE move on and focus on rebuilding its business.

Related Link: Oppenheimer Upgrades General Electric: 'Turnaround Gaining Traction'

Why It’s Important: The settlement was related to an investigation that began way back in November 2017 and involved GE’s recognition and control over long-term service agreements. In 2018, the SEC added long-term care insurance and Power segment goodwill impairments to the investigation.

The SEC found that GE had improperly lowered cost estimates on Power service agreements to boost profits in 2016 and 2017. GE was also accused of improperly pulling forward Power cash collections to boost Industrial FCF from 2015 to 2017 and improperly lowering projected long-term care claims costs in 2015, 2016 and 2017.

Obin said none of the issues involved in the settlements have taken place since 2017, and no current senior GE management was involved in the allegations.

Now that the investigations are in the past, Obin says GE is on track to boost EPS from 3 cents in 2020 to 35 cents in 2021 and 57 cents in 2022.

“Over the medium term, improving FCF should support share price appreciation,” Obin wrote in a note.

Bank of America has a Buy rating and $13 price target for GE.

Benzinga’s Take: GE investors are likely growing tired of hearing about how a turnaround is just around the corner after years of underperformance and lackluster cash flow and earnings numbers, and the stock remains a show-me story at this point. With a coronavirus vaccine likely widely available by the second half of 2021, GE will need to demonstrate that its turnaround plan will produce real results in generating earnings and FCF growth.

Photo credit: Momoneymoproblemz, via Wikimedia Commons

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