Will GE (GE) Dump Forecasts After Debt Downgrade?

It is an interesting theory, but it may not be plausible.

Some analysts think that GE (GE) will use a downgrade of its debt by S&P as cover for reducing forecasts for earnings out of its large financial unit. It would be an admission by the conglomerate’s management that the ratings agency knew more about the company’s prospects than the company did.

According to Bloomberg “General Electric Co. may reduce its 2009 profit target for GE  Capital after Standard & Poor’s lowered debt ratings and predicted “considerably weaker” results for the finance arm.”

It seems unlikely that GE management would be so craven as to use the credit downgrade as a way to unmask reduced forecasts that it must have known about for weeks. Such as action would also be terribly transparent.

GE cutting forecasts on the heels of the S&P action would make the company look bad in a way that its stock performance has not. It would raise the issue of whether GE is willing to game the system of what analysts say about the firm as an excuse for poor forecasting.

Douglas A. McIntyre