GE Could Shift To GAAP Accounting, Causing Stock Drop, Says Gordon Haskett

New General Electric (GE) CEO Larry Culp likely has every intention of establishing a 2019 guidance framework that the company can actually achieve, which would be welcomed by investors after years of "non-credible GE guidance, perpetual exaggerations, opaque disclosure, and aggressive accounting", Gordon Haskett analyst John Inch told investors earlier in a research note titled "Move to GAAP could drive stock hit". The analyst has an Underperform rating on General Electric with a $7 price target. The stock in morning trading is down 33c to $8.83. He believes Larry Culp, in contrast with the previous CEO John Flannery, is going to want to set a guidance bar that GE "can at least hit".

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In turn, while GE may not be able to adopt more conservative accounting while under government investigation, a move to GAAP would at least demonstrate Culp's directional willingness to abandon the "inflated and exaggerated earnings presentation practices of the past," says Inch. However, if GE were to move to GAAP accounting, its share price would move lower, driven by a lower GAAP impact on consensus, the analyst contends.

Further, GE's accounting could still be viewed as aggressive under a GAAP presentation framework, adds Inch. As such, he thinks subsequent future restatements from the adoption of more conservative accounting "could readily ensue." Inch also sees risks in GE's revised deal with Wabtec deal (WAB).

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