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Why General Electric Stock Just Popped 5%

By Rich Smith – Oct 8, 2020 at 9:45AM

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Wall Street isn't scared of the SEC.

What happened

General Electric (GE -0.41%) stock is continuing to claw its way back after falling hard Tuesday, after it was revealed GE is the subject of an SEC investigation into its accounting practices. In Tuesday trading, GE shares slipped nearly 5% at one point in response to the news. However, thanks to some well-timed good news from Wall Street, today, GE shares are now back above where they started this week -- and up 5.2% in 3 p.m. EDT trading.


Analyst supporting a rising stock arrow

Image source: Getty Images.

So what

A couple of news items seem to be working in GE's favor today. For one thing, despite Tuesday's news, Bank of America yesterday reiterated its buy rating on GE stock, and held firm on its $11 price target.

According to the analyst, the SEC is questioning historical accounting for revenue and profits at GE's insurance business -- but GE has already taken charges of $9.5 billion on that business, and taken steps to add $14.5 billion in new capital to secure its obligations. In BofA's opinion, this probably covers most of the actions the SEC might require GE to take in any case, and at worst, the company might be looking at a civil fine on the order of less than $100 million -- pocket change for the $58 billion company.  

Moody's Investors Services appears to agree with that take, too, saying yesterday that while it views the SEC investigation as a "credit negative," it is not planning to downgrade GE's credit rating in response to the news -- indicating that Moody's, too, sees the financial impact of the investigation as minimal.

Now what

And they may both be right about that. Viewed in the context of GE's other financial troubles -- the fact that the company has lost money in four of the past five years, and lost $4.5 billion over the last 12 months alone -- an SEC investigation may be the least of GE's worries. Much more concerning is the fact that, thanks to COVID-19 and the recession, sales at GE Healthcare are down 10% so far this year, GE Power revenue is down 12%, and GE Aviation sales are down 28%.

If you want something to worry about with GE stock, worry about those numbers first.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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