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BRK.B Stock Lags Industry in 3 Months: How to Play the Stock
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Berkshire Hathaway Inc. (BRK.B - Free Report) shares have gained 6.6% in the past three months, underperforming the industry’s 8.9% growth and the S&P 500 composite’s rise of 7.4%.
Berkshire Hathaway is a conglomerate with more than 90 subsidiaries engaged in diverse business activities. About 40% of Berkshire’s operating earnings came from its insurance underwriting and insurance investment subsidiaries in 2023. Other operations, including utilities and energy, and manufacturing, service and retail, combined accounted for the remaining 60%.
Berkshire Underperforms Industry & S&P in 3 Months
Image Source: Zacks Investment Research
BRK.B Trading Above 50-Day Moving Average
Berkshire shares are trading well above the 50-day moving average, indicating a bullish trend.
BRK.B Price Movement Vs. 50-Day Moving Average
Image Source: Zacks Investment Research
Downward Estimate Revision
The consensus estimate for 2024 and 2025 has moved 6.1% and 4% south in the past 30 days, respectively, reflecting analyst pessimism.
Image Source: Zacks Investment Research
BRK.B’s Growth Instills Confidence
The Zacks Consensus Estimate for 2024 implies a 14.1% year-over-year increase on 1.1% higher revenues, while the same for 2025 suggests a 1.6% increase on 1.7% higher revenues. The expected long-term earnings growth rate is pegged at 7%.
Factors Favoring Berkshire
Berkshire’s insurance operations contribute around one-fourth of its top line. Increased exposure, prudent underwriting standards and better pricing poise the insurance business for long-term growth.
Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. Notably, Berkshire generated underwriting profit in 18 of the last 20 years. However, when catastrophes occur, like other insurers, Berkshire’s underwriting profitability is affected, resulting in a deterioration of its combined ratio.
Berkshire Hathaway’s economically sensitive non-insurance businesses — Utilities and Energy, and Manufacturing, Service and Retail — are performing well. Per the Federal Reserve issued FOMC statement, “Recent indicators suggest that economic activity has continued to expand at a solid pace.” Thus, Berkshire’s utilities and energy, and manufacturing, service and retail units are poised to benefit from an improving economy.
The Utilities and Energy business has grown with increased revenue contributions from Burlington Northern SantaFe Corp. However, unfavorable changes in the business mix and lower fuel surcharge revenues are areas of concern. Lower fuel costs are expected to limit any downside. Nonetheless, demand for utilities is expected to be strong in the future and drive earnings growth.
Collectively, these have driven revenues higher and facilitated margin expansion over the past many years.
With a huge cash hoard, we believe Berkshire Hathaway will successfully continue its acquisition spree, acquiring entities that have consistent earnings power and generate impressive returns on equity. While big acquisitions open up more business opportunities for the company, bolt-on acquisitions enhance the earnings of the existing business.
Warren Buffett has always eyed acquisitions or made investments in properties that are undervalued or have growth potential. Investments in Coca-Cola, American Express, Apple, Chevron and Occidental Petroleum show the investment acumen of Warren Buffett.
This insurer distributes wealth to shareholders through share buybacks. Berkshire Hathaway bought back shares worth $2.9 billion in the first half of 2024.
Berkshire’s Return on Capital
Return on equity in the trailing 12 months was 7.4%, underperforming the industry average of 8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders. It's noteworthy that though BRK.B’s ROE lags behind the industry average, the company has successfully improved the same.
Image Source: Zacks Investment Research
Its return on invested capital (ROIC) has increased every year since 2020. This reflects BRK.B’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 5.8%, lower than the industry average of 6.1%.
Image Source: Zacks Investment Research
BRK.B’s Valuation
BRK.B shares are trading in line with the Zacks Property and Casualty Insurance industry. Its price-to-book value of 1.64X is lower than the broader sector’s 3.71X and the Zacks S&P 500 composite’s 8.85X.
This insurance behemoth has a market capitalization of $995.4 billion. The average volume of shares traded in the last three months was 3.8 million.
Image Source: Zacks Investment Research
The stock remains attractively valued compared with other insurers like The Progressive Corporation (PGR - Free Report) and The Allstate Corporation (ALL - Free Report) .
Average Target Price for BRK.B Suggests an Upside
Based on short-term price targets offered by four analysts, the Zacks average price target is at $471.5 per share. The average suggests a potential 1.6% upside from Tuesday’s closing price of $464.16.
Image Source: Zacks Investment Research
Conclusion
Per Warren Buffett, Berkshire’s “strength comes from its Niagara of diverse earnings delivered after interest costs, taxes and substantial charges for depreciation and amortization.” Its property and casualty insurance business, one of the largest property and casualty insurance companies, generates the maximum return on equity.
Holding shares of Berkshire Hathaway renders dynamism to shareholders’ portfolios. Also, it has Warren Buffett at its helm, who has been creating tremendous value for shareholders over nearly six decades with his unique skills.
However, unfavorable return on capital and downward estimate revisions keep us cautious.
Thus, investors who already hold Berkshire shares should continue to retain this Zacks Rank #3 (Hold) stock in their portfolio, while others can wait for some more time.
Image: Bigstock
BRK.B Stock Lags Industry in 3 Months: How to Play the Stock
Berkshire Hathaway Inc. (BRK.B - Free Report) shares have gained 6.6% in the past three months, underperforming the industry’s 8.9% growth and the S&P 500 composite’s rise of 7.4%.
Berkshire Hathaway is a conglomerate with more than 90 subsidiaries engaged in diverse business activities. About 40% of Berkshire’s operating earnings came from its insurance underwriting and insurance investment subsidiaries in 2023. Other operations, including utilities and energy, and manufacturing, service and retail, combined accounted for the remaining 60%.
Berkshire Underperforms Industry & S&P in 3 Months
Image Source: Zacks Investment Research
BRK.B Trading Above 50-Day Moving Average
Berkshire shares are trading well above the 50-day moving average, indicating a bullish trend.
BRK.B Price Movement Vs. 50-Day Moving Average
Image Source: Zacks Investment Research
Downward Estimate Revision
The consensus estimate for 2024 and 2025 has moved 6.1% and 4% south in the past 30 days, respectively, reflecting analyst pessimism.
Image Source: Zacks Investment Research
BRK.B’s Growth Instills Confidence
The Zacks Consensus Estimate for 2024 implies a 14.1% year-over-year increase on 1.1% higher revenues, while the same for 2025 suggests a 1.6% increase on 1.7% higher revenues. The expected long-term earnings growth rate is pegged at 7%.
Factors Favoring Berkshire
Berkshire’s insurance operations contribute around one-fourth of its top line. Increased exposure, prudent underwriting standards and better pricing poise the insurance business for long-term growth.
Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity. Notably, Berkshire generated underwriting profit in 18 of the last 20 years. However, when catastrophes occur, like other insurers, Berkshire’s underwriting profitability is affected, resulting in a deterioration of its combined ratio.
Berkshire Hathaway’s economically sensitive non-insurance businesses — Utilities and Energy, and Manufacturing, Service and Retail — are performing well. Per the Federal Reserve issued FOMC statement, “Recent indicators suggest that economic activity has continued to expand at a solid pace.” Thus, Berkshire’s utilities and energy, and manufacturing, service and retail units are poised to benefit from an improving economy.
The Utilities and Energy business has grown with increased revenue contributions from Burlington Northern SantaFe Corp. However, unfavorable changes in the business mix and lower fuel surcharge revenues are areas of concern. Lower fuel costs are expected to limit any downside. Nonetheless, demand for utilities is expected to be strong in the future and drive earnings growth.
Collectively, these have driven revenues higher and facilitated margin expansion over the past many years.
With a huge cash hoard, we believe Berkshire Hathaway will successfully continue its acquisition spree, acquiring entities that have consistent earnings power and generate impressive returns on equity. While big acquisitions open up more business opportunities for the company, bolt-on acquisitions enhance the earnings of the existing business.
Warren Buffett has always eyed acquisitions or made investments in properties that are undervalued or have growth potential. Investments in Coca-Cola, American Express, Apple, Chevron and Occidental Petroleum show the investment acumen of Warren Buffett.
This insurer distributes wealth to shareholders through share buybacks. Berkshire Hathaway bought back shares worth $2.9 billion in the first half of 2024.
Berkshire’s Return on Capital
Return on equity in the trailing 12 months was 7.4%, underperforming the industry average of 8%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders. It's noteworthy that though BRK.B’s ROE lags behind the industry average, the company has successfully improved the same.
Image Source: Zacks Investment Research
Its return on invested capital (ROIC) has increased every year since 2020. This reflects BRK.B’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 5.8%, lower than the industry average of 6.1%.
Image Source: Zacks Investment Research
BRK.B’s Valuation
BRK.B shares are trading in line with the Zacks Property and Casualty Insurance industry. Its price-to-book value of 1.64X is lower than the broader sector’s 3.71X and the Zacks S&P 500 composite’s 8.85X.
This insurance behemoth has a market capitalization of $995.4 billion. The average volume of shares traded in the last three months was 3.8 million.
Image Source: Zacks Investment Research
The stock remains attractively valued compared with other insurers like The Progressive Corporation (PGR - Free Report) and The Allstate Corporation (ALL - Free Report) .
Average Target Price for BRK.B Suggests an Upside
Based on short-term price targets offered by four analysts, the Zacks average price target is at $471.5 per share. The average suggests a potential 1.6% upside from Tuesday’s closing price of $464.16.
Image Source: Zacks Investment Research
Conclusion
Per Warren Buffett, Berkshire’s “strength comes from its Niagara of diverse earnings delivered after interest costs, taxes and substantial charges for depreciation and amortization.” Its property and casualty insurance business, one of the largest property and casualty insurance companies, generates the maximum return on equity.
Holding shares of Berkshire Hathaway renders dynamism to shareholders’ portfolios. Also, it has Warren Buffett at its helm, who has been creating tremendous value for shareholders over nearly six decades with his unique skills.
However, unfavorable return on capital and downward estimate revisions keep us cautious.
Thus, investors who already hold Berkshire shares should continue to retain this Zacks Rank #3 (Hold) stock in their portfolio, while others can wait for some more time.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.