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Will Cat Loss Hurt Berkshire Hathaway (BRK.B) Q3 Earnings?

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Berkshire Hathaway Inc. (BRK.B - Free Report) is expected to report third-quarter 2018 earnings on Nov 2, after the market closes. The company delivered a positive surprise in the last two reported quarters.

Let’s see, what is in store for the company this yet-to-be reported quarter.

Earnings at Berkshire Hathaway have possibly been aided by an improved performance across all segments. In fact, the Zacks Consensus Estimate for third-quarter earnings is pegged at $2.50, up 78.6% from the year-ago quarter’s level.

The company boasts being the second largest property and casualty insurance company, measured by premium volumes. Premiums are expected to have improved in the third quarter on better pricing, increase impolicy writing, and prudent underwriting practices, given its compelling suite of products.

The third quarter of a year generally bears the brunt of unprecedented catastrophes. A hurricane season typically gathers strength in August and September. This time was also no different as the company suffered the wrath of Hurricane Florence. Cat losses have possibly been a drag on underwriting profitability as the company has exposure to North Carolina where the hurricane made a landfall.

Berkshire Hathaway’s economically sensitive non-insurance businesses — utilities and energy plus manufacturing, service and retail — are expected to have delivered better results in the quarter to be reported.

Contribution from Burlington Northern SantaFe Corp. is estimated to have consistently lent a cushion to results in the light of an increased unit volume and economic strength gaining traction.

Berkshire Hathaway’s Finance and Financial Products segment units — CORT (furniture) and XTRA (semi-trailers) — are industry leaders. These witnessed a considerable improvement in earnings with recovery in the soft housing market. Given the economic rebound, these are likely to have delivered better numbers in the to-be-reported quarter.

What Our Quantitative Model Predicts

Our proven model does not conclusively show that Berkshire Hathaway is likely to beat estimates this earnings season. This is because the stock has the right combination of a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold)f or this to happen. But that is not the case here as you can see below:

Earnings ESP: Berkshire Hathaway has an Earnings ESP of -0.20%. This is because the Most Accurate Estimate of $2.49 is pegged lower than the Zacks Consensus Estimate of $2.50. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Berkshire Hathaway Inc. Price and EPS Surprise

Zacks Rank: Berkshire Hathaway carries a Zacks Rank #2, which increases the predictive power of ESP. Moreover, a positive ESP increases the odds of an earnings surprise. Therefore, this combination significantly raises the stock’s chances of an earnings beat this reporting cycle.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Some other stocks worth considering from the finance sector with the right combination of elements to also exceed estimates this time around are as follows:

CNA Financial Corporation (CNA - Free Report) is set to report third-quarter earnings on Nov 5 and has an Earnings ESP of +4.19%. The company is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

TCG BDC, Inc. (CGBD - Free Report) has an Earnings ESP of +1.65% and a Zacks Rank of 2. The company is set to release third-quarter earnings on Nov 6.

Prudential Financial, Inc. (PRU - Free Report) has an Earnings ESP of +0.13% and a Zacks Rank #2. The company is set to announce third-quarter earnings on Nov 7.    

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