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Analyst Blog

On Apr 16, 2013, shares of Berkshire Hathaway Inc. (BRK.B - Analyst Report) hit a 52-week high of $107.49, driven by the fundamental strength of the company.

Berkshire Hathaway’s property and casualty insurance business has been propelling its growth. The company’s insurance business maintains capital strength at exceptionally high levels.

Berkshire Hathaway’s economically sensitive non-insurance businesses – utilities and energy, and manufacturing, service and retail – are also headed for recovery after suffering substantial earnings decline in the recent past due to the weak economy. Moreover, the MidAmerican utility business is expected to generate modest normalized annual earnings growth, driven by PacifiCorp’s rate cases and a drop in some expenses, partially offset by continued investment in the business.

Moreover, Berkshire Hathaway’s total revenue for manufacturing, service and retail has been increasing for the past many quarters, reflecting improved results across most of the units due to better economic conditions and a higher consumer demand.

Further, the valuation of Berkshire Hathaway looks stretched. The shares are currently trading at a premium to the peer group average on the forward price-to-earnings basis and almost at par with the peer group average on a price-to-book basis. However, its return on equity of 7.0% is lower than the peer group average of 9.3%.

With respect to earnings trend, Berkshire Hathaway witnessed positive earnings surprises in 2 of the last 4 quarters with an average beat of 4.14%.

Berkshire Hathaway currently carries a Zacks Rank #3 (Hold). Other property and casualty insurers worth considering are W.R. Berkley Corporation (WRB - Analyst Report), Cincinnati Financial Corp. (CINF - Analyst Report) and Everest Re Group Ltd. (RE - Analyst Report), all of which carry a Zacks Rank #1 (Strong Buy).

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