Last week, General Electric (GE) hosted what it dubbed as a “teach-in” for investors and analysts to learn about its insurance business. In an effort to show more transparency in its restructuring efforts, CEO Larry Culp hosted this event to discuss what the company is doing with its insurance business and allow for analysts to critique and ask questions.
RBC analyst Deane Dray says the company’s assumptions are reasonable with no new negatives, and does not change the picture on the stock moving forward. The analyst maintains his Outperform rating and $12 price target on the stock, which implies nearly 22% upside from current levels. (To watch Dray’s track record, click here)
Dray believes the teach-in “should help quell investor clamoring that GE needs to pay-up to ‘ring-fence’ this liability.” Its North American Life & Health (NAHL) segment stopped writing new policies in 2008, and “primarily houses the legacy stub businesses retained when GE exited Genworth and Employers Reinsurance Corporation,” says Dray. The analyst added, “the purpose of the teach-in call was to provide much-needed/long-overdue specifics on GE assumptions underlying its reserve calculations and defend its position that the current $30 bil of statutory reserves are appropriate to support its long-term care (LTC) liabilities.”
In Dray’s view, “the most important takeaway is that the conference call and slides did not identify any new negatives or risks that another sizeable reserve charge is imminent, likely contributing to the positive GE stock reaction.” The analyst says he is “also impressed by the breadth of the disclosures/transparency around each of the assumptions, including for morbidity and discount rates,” which was a major reason Culp hosted the event.
Even though there was nothing new or negative from the event, Dray warns “there will still be some debate over how appropriate each assumption is.” He says, “RBC US Insurance analyst Mark Dwelle believes that GE’s morbidity and discount rate assumptions are a touch aggressive, while the projected premium rate increases look reasonable. Finally, we believe that one of the broader positives that came out of the call is that there is arguably less urgency for GE to pay a counterparty to ring-fence this liability.”
All in all, General Electric’s restructuring plan is in full force, as is its PR and marketing strategies. It is not enough to turn around the company without constantly providing investors details on its plan and frequent updates on its success. This is a great way to regain trust, and it seems to be working.
TipRanks suggests optimism with some caution baked into expectations when it comes to Wall Street’s majority perspective on the industrial giant. Out of 14 analysts polled in the last 3 months, analysts are split between the bulls and the sidelined on GE: 7 rate a Buy on the the stock while 6 maintain Hold and 1 recommends Sell. The 12-month average price target stands at $10.80, marking nearly 13% in upside potential from where the stock is currently trading. (Get TipRanks’ free stock analysis report on GE)
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