What happened

General Electric (NYSE:GE) stock fell 12.7% in February according to data from S&P Global Market Intelligence. The fall marked ongoing weakness in the share price emanating from the fallout from a mixed set of fourth-quarter results from GE in January. In addition, there's a disappointing read across from the earnings from key rival Siemens. Meanwhile, investors are waiting for the result of an investigation by the Securities and Exchange Commission (SEC) on GE's long-term service agreements (LTSA) and how GE books revenue on them.

a man with a magnifying glass looking at a document

The SEC is taking a close look at GE's accounting. Image source: Getty Images.

To cap it all off, toward the end of February, CFO Jamie Miller said, "I think what you should expect is we're probably more at the lower end of that range" when asked about the company's guidance during Barclays Industrial Select Conference.

So what

Miller's commentary is particularly interesting because it comes after a set of fourth-quarter earnings that saw a weaker power market than originally anticipated -- something that leads us to ask why full-year 2018 guidance wasn't lowered on the fourth-quarter earnings call.

Management addressed this point on the earnings call and at the Barclays conference, essentially arguing that strength in the healthcare and aviation segments gave them confidence in the full-year guidance range.

However, Miller's update may be the first step in a reassessment of guidance, and it should be noted that analysts' consensus for full-year EPS of $0.96 is below the bottom end of GE's guidance for $1.01 to $1.07.

Now what

There's a lot going on with GE in 2018, and investors should look out for the following for the rest of the year:

  • Asset sales as promised by CEO John Flannery at the GE investor update in November.
  • Improvement in operating performance, particularly with regard to cost-cutting measures.
  • A margin recovery in GE Power, notably on the services side. 
  • Trouble-free resolution of the SEC investigation.
  • Ongoing strength in cash-flow generation -- an area where GE provided some upside surprise in January.

There is a case to be made for buying the stock -- trading on 14 times forward earnings, it certainly doesn't look expensive. However, it's going to need some stabilization in the power segment, plus some positive news from the SEC investigation -- notably to eradicate any doubts on how GE accounts for LTSA in its challenged power segment -- and successful asset sales in order to completely dispel any fears over its earnings guidance and even the sustainability of its dividend.

It's going to be a busy year for GE. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.