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Analyst Blog

On Sep 29, 2016, we issued an updated research report on Berkshire Hathaway Inc. (BRK.B - Analyst Report) .

Berkshire Hathaway’s non-insurance businesses like utilities and & energy, and manufacturing, service & retail, have been reporting favorable results. In fact, total revenue from manufacturing, service and retail has improved substantially over the past several quarters. The strong results across most of the units can be attributed to better economic conditions and higher consumer demand.

Also, the company’s book value has been improving consistently. The insurer’s already robust book value growth is expected to be boosted further with the turn of the economy, increased gains from the value of the derivatives positions, and continued positive contribution from earnings growth in insurance operations.

Further the company’s inorganic portfolio continues to impress and is anticipated to be accretive to earnings in the future. Recently, the property and casualty (P&C) insurer announced its intention to buy stake in Apple Inc. (AAPL - Analyst Report) . We expect this strategic move to be accretive to bottom-line growth going forward.

Moreover, a robust capital level not only reflects financial strength but also well positions the company to negotiate strongly when dealing with reinsurance activities.

However, exposure to catastrophe losses continues to adversely affect the company’s underwriting results. Given the unpredictable nature and magnitude of catastrophes, such losses will continue to produce significant volatility in the insurer’s P&C underwriting results.  In addition, huge capital expenditure on account of the company’s railroad operations raises concern.

The Zacks Consensus Estimate has also been witnessing downward estimate revisions for 2016 and 2017, over the last 60 days.

Stocks to Consider

Investors may consider some other stocks from the P&C industry, which will include National Interstate Corporation (NATL - Snapshot Report) and Argo Group International Holdings, Ltd. (AGII - Snapshot Report) .

National Interstate, a specialty P&C insurer, has delivered positive surprises in two of the last four quarters, with an average beat of 7.59%.

Argo Group, another P&C insurer, has delivered positive surprises in all of the last four quarters, with an average beat of 21.73%.

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