Berkshire Hathaway (BRK.B Quick QuoteBRK.B - Free Report) is expected to witness an improvement in its top line when it reports third-quarter 2024 results on Nov. 1, after the closing bell. However, the bottom line is expected to decline. 

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The Zacks Consensus Estimate for BRK.B’s third-quarter revenues is pegged at $96.6 billion, indicating 3.7% growth from the year-ago reported figure.

The consensus estimate for earnings is pegged at $4.81 per share. The Zacks Consensus Estimate for BRK.B’s third-quarter earnings has moved up 5.3% in the past 30 days. The estimate suggests a year-over-year decrease of 3%. 
 

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BRK.B’s Solid Earnings Surprise History

Berkshire Hathway’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 47.11%. This is depicted in the following chart.
 

Image Source: Zacks Investment Research

What the Zacks Model Unveils for Berkshire Hathaway 

Our proven model does not conclusively predict an earnings beat for Berkshire this time around. This is because a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which increases the chances of an earnings beat. This is not the case, as you can see below.

You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Earnings ESP: BRK.B has an Earnings ESP of +8.11%. This is because the Most Accurate Estimate of $5.20 is pegged higher than the Zacks Consensus Estimate of $4.81.

Zacks Rank: BRK.B currently has a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Shape BRK.B’s Q3 Results

The insurance business is likely to have benefited from improved pricing, solid retention, higher average premiums per auto policy, increased exposure and favorable reserve development. Continued insurance business growth is expected to have increased float.

However, high catastrophe losses are likely to have been a drag on underwriting profitability.  The third quarter faced the wrath of Hurricane Helene. Per Insurance Journal, loss from Hurricane Helene is expected to cost public and private insurers between $10 billion and $15 billion alone. Thus, the combined ratio is likely to have deteriorated.   

GEICO, the private passenger automobile insurance business, is expected to have delivered an improved performance, banking on higher average premiums per auto policy as well as lower claims frequencies, coupled with improved operating efficiencies.

Investment results are likely to benefit from higher yields and a larger investment asset base.

Unfavorable changes in business mix and lower fuel surcharge revenues are likely to have weighed on the railroad business. However, car/unit volumes are likely to have increased. 

Earnings of BNSF  are likely to reflect improved employee productivity and lower costs along with higher litigation-related charges.

Improved earnings from the U.S. regulated utilities, natural gas pipeline and other energy businesses are likely to have benefited the utilities and energy business. However, lower earnings from the real estate brokerage business are expected to have dampened the upside.

Manufacturing, service and retailing businesses are likely to have benefited from higher customer demand for products and services in many businesses. 

Share buybacks are likely to have provided an additional upside to the bottom line.

BRK.B’s Price Performance & Valuation

The stock has underperformed the industry year to date. 
 

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The stock is trading at a price-to-book value of 1.61X, slightly lower than the industry’s 1.62X. It is attractively valued compared with other insurers like The Progressive Corporation (PGR Quick QuotePGR - Free Report) and The Allstate Corporation (ALL Quick QuoteALL - Free Report) .

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Investment Thesis

Among its diverse business activities, the most important is its insurance operations. The insurance business is exposed to the vagaries of nature, which induces volatility in its underwriting profitability and weighs on its combined ratio. An extremely active 2024 hurricane season with 25 named storms, including 12 hurricanes and six major hurricanes as predicted by the Colorado State University, will no doubt dilute the bottom line of this insurer. 

However, this company creates tremendous value for shareholders, given Berkshire Hathaway's dominant market presence, diverse business activities and, above all, the name Warren Buffett. 

What Should Investors Do Now With BRK.B Stock?

Coming back to the to-be-reported quarter, a better-than-expected private passenger automobile insurance business is likely to limit the downside arising from catastrophe losses.  Also, better performance from other businesses should offer respite. 

Its unfavorable return on capital, a likely decline in third-quarter earnings, lowered times interest earned, and contracting margins make the stock vulnerable. The company’s exposure to catastrophes tends to make its underwriting results volatile. Notably, insurance operations contribute around one-fourth of Berkshire’s top line. Investors would rather do well to stay away from the stock for now.