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Why Is Berkshire Hathaway (BRK.B) Up 11.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Berkshire Hathaway (BRK.B - Free Report) . Shares have added about 11.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Berkshire Hathaway due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Berkshire Q3 Earnings Decline, Segment Results Soft

Berkshire Hathaway delivered third-quarter 2020 operating earnings of $5.5 billion that decreased 32.1% year over year.

Soft performance in Insurance and Others, Railroad, Utilities and Energy as well as Manufacturing, Service and Retailing resulted in the decline.

Behind the Headlines

Revenues decreased about 3% year over year to $63 billion, attributable to lower revenues from Insurance and Other operations as well as Railroad, Utilities and Energy.

Costs and expenses decreased 1.6% year over year to $57 billion, largely due to increase in costs and expenses in Insurance and Other.

Segment Results

Berkshire Hathaway’s Insurance and Other segment revenues increased 0.1% year over year to $17.1 billion in the third quarter of 2020 on the back of higher insurance premiums earned. Pretax earnings were $0.9 billion, down 60.7% year over year.

Railroad, Utilities and Energy operating revenues declined 3.1 year over year to $11.4 billion due to decrease in volume, average revenue per car/unit and soft energy business. Pretax earnings of $2.9 billion were down 3.4% year over year. The results reflect the negative effects of COVID-19.

Total revenues at Manufacturing, Service and Retailing decreased 3.9% year over year to $34.5 billion. Pretax earnings declined 1.4% year over year to $3.3 billion. Impacts of COVID-19 weighed on the results.

Financial Position

As of Sep 30, 2020, consolidated shareholders’ equity was $415.2 billion, down 2.3% from the level as of Dec 31, 2019. At quarter end, cash and cash equivalents were $26.8 billion, down 58.2% from the level at 2019 end.

The company exited the third quarter of 2020 with a float of about $135 billion, up $6 billion from the figure at year-end 2019.

Cash flow from operating activities totaled $29.2 billion in the first nine months of 2020, up 9.8% from the year-ago period.

The company bought back shares worth $9 billion, taking the first nine months’ tally to $15.7 billion.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Berkshire Hathaway has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Berkshire Hathaway has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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