Shares in economic bellwether GE fell more than 5 per cent on Thursday after BarCap said the company’s profit might be driven largely by tax gains.
BarCap analyst Robert Cornell argued in a note that more than half of its forecast Q4 profit for the conglomerate could come from tax benefits :
We think GE’s 4Q08 may have been challenging & expect a neg tax rate to contribute a substantial portion of EPS, perhaps $0.20 of our $0.36 est.
GE has given guidance for all-in 4Q08 EPS to be $0.36-$0.42; We expect the company to be near the low end of that range when they report on 1/23
We believe 4Q08 could contain a tax benefit of approximately $2B, or roughly $0.20 per share;
Although a negative tax rate may be in expectations, we aren’t sure if the Street is prepared for a contribution of this magnitude.
BarCap also raised the prospect of Moody’s following in S&P’s footsteps and lowering its outlook on GE to negative from stable. S&P said last month GE had a 1-in-3 chance of losing its coveted triple-A rating over the next two years.
(H/T Bryce Elder)
Related links:
GE Capital launches $10bn FDIC-backed debt – Reuters
GE expects to miss profit forecast – FT
GE debt rating outlook lowered by S&P – FT