GE shares rise as analysts say annual report reveals a major issue is 'likely contained'


A man takes a picture of a General Electric (GE) engine during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China November 6, 2018.

Aly Song | Reuters

A man takes a picture of a General Electric (GE) engine during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China November 6, 2018.

General Electric shares rose in premarket trading Wednesday after Wall Street analysts said the company’s “more detailed” disclosure of insurance liabilities shows less risk than last year. The disclosure came in GE’s annual report, filed Tuesday evening.

GE Capital has contributed $1.9 billion to GE’s insurance subsidiaries in the first quarter of 2019, down from $3.5 billion in the first quarter of 2018. Additionally, GE expects GE Capital will make further contributions of $9 billion over the next five years.

This gave GE shareholders a “more detailed disclosure on the company’s run-off Insurance business inside GE Capital,” Merrill analyst Andrew Obin said in a note to investors, adding that those “liabilities are likely contained.”

“The business has been one of the main areas of concern for investors regarding incremental capital requirements beyond already communicated $16 billion a year ago, with the positive news on only small incremental losses of $65 million in 4Q18 providing a relief rally for the stock,” Obin said.

While the business is still “not without incremental risks to additional capital requirements,” Obin said that GE’s insurance book “is likely in a solid shape in the medium-term.”

RBC Capital Markets analyst Deane Dray also pointed to what he called “enhanced disclosures on insurance liability assumptions” in GE’s annual report.

“In our view, the filing marked another step forward in GE’s journey towards increased transparency, simplified reporting, and clearer communications to investors,” Dray said.

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The lack of a change to GE’s forecast of $14.5 billion in total cash outflows through 2024 was the “most material” update,” Deutsche Bank’s Nicole DeBlase said. That GE stuck to the forecast is important, DeBlase said, as “we had heard some concern over potential bad news around insurance obligations.”

As the company’s year-end quarterly report did not include a forecast for 2019 earnings, investors are now looking to GE’s “highly anticipated outlook conference call” on March 14, Dray said.

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