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We are upgrading our recommendation on the shares of Berkshire Hathaway Inc. (BRK.A - Snapshot Report) (BRK.B - Analyst Report)  to Outperform from Neutral following solid first quarter earnings, which included a 52.3% positive earnings surprise. Results reflected strong performance across all the business segments – Insurance, Railroad, Utilities and Energy, Manufacturing, Service and Retailing as well as Finance and Financial products.

Why the upgrade?

Berkshire’s property and casualty insurance business has been the engine behind its growth. The company’s insurance business maintains capital strength at exceptionally high levels. This strength differentiates Berkshire’s insurance companies from its competitors.

Berkshire’s economically sensitive non-insurance businesses – utilities and energy, and manufacturing, service and retail – are performing well after suffering substantial earnings decline in the recent past due to the weakness in the economy. The utilities and energy business is supposed to bring key growth with increased revenues expectation from BNSF (which provide railways services through Burlington Northern Santa Fe Corp and was acquired in Feb 2010). Revenue from BNSF has been a major contributor to the company’s revenue.

Moreover, Warren Buffett’s unique skills have created tremendous value for shareholders, with book value per share growing from $19 to $95,453 over the last 46 years, at a rate of 20.2% compounded annually.

Following the earnings release, over the last 30 days, 1 of 2 estimates moved north pushing the Zacks Consensus Estimate for 2013 by 5.5% to $5.69.  For 2014, one analyst covering the stock, moved up the estimates by 8.1% to $6.30 per share.

Other stocks

Berkshire Hathaway retains a Zacks Rank #2 (Buy). Other players from the same industry such as Alleghany Corp. (Y - Snapshot Report), Hanover Insurance Group Inc. (THG - Snapshot Report), and Montpelier Re Holdings Ltd. (MRH - Analyst Report), all carrying Zacks Rank #1(Strong Buy) are worth considering.

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