This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Berkshire Annual Meeting: What Wall Street Is Saying

NEW YORK (TheStreet) -- Berkshire Hathaway (BRK.A - Get Report) is likely to continue to see a payoff from bets on energy, infrastructure and real estate that reflect an improving U.S. economy with strong pockets of growth. Insurance, a staple of Berkshire, may see a slight compression of profit margins, as the company reports first quarter earnings after the bell on Friday.

 

Overall, revenue at Berkshire Hathaway is expected to grow in the high single digits from the first quarter of 2013, however, profits may be flat to down, according to Wall Street consensus. Warren Buffett-run company is expected to earn $47.6 billion in revenue and net income of $2.2 billion, according to analyst estimates compiled by Bloomberg.

In the fourth quarter, Berkshire Hathaway reported operating earnings of $3.7 billion for the fourth quarter of 2013, a 34% increase from year-ago levels.

Must Read: Sell in May, Many Fund Managers Say

When counting investment and derivative gains of $1.2 billion for the fourth quarter, Berkshire Hathaway reported net income of just under $5 billion for the fourth quarter, a new record.

Here's what analysts are saying ahead of the earnings report:

Barclays analyst Jay Gelb (Overweight, $223500.00 PT per Class A share, $149 PT per Class B share)

We expect Berkshire shares to benefit from attractive growth in both book value per share and earnings, driven by its insurance and non-insurance businesses. Berkshire's business mix has shifted over time, with Insurance becoming a smaller portion of the company. Growth areas include Utilities and Energy (including the NVE acquisition) and the Manufacturing, Service, and Retail unit (helped by bolt-on acquisitions), as well as the Burlington Northern railroad (acquired in 2010).

In fact, the percentage contribution to operating earnings from Berkshire's non-insurance businesses increased to 66% in 2013 up from 43% in 2006. In 2013 Berkshire's five largest non-insurance businesses generated record profits of $11bn, up from $10bn in 2012 and $9bn in 2011; the company expects to report stronger earnings again in 2014.

BRK shares are attractively valued currently at 1.41x book value, which is near the level (1.2x book value) at which the company will repurchase stock. The buyback plan provides a support level and signals how strongly Mr. Buffett believes Berkshire's intrinsic value exceeds its book value. We raise our price target to $149 price target ($223,500 per Class A share). This valuation implies a multiple of 1.4x (near the avg historical multiple since 2008) year-end 2015E book value per Class B share of $109 ($163,500 per Class A share) from $144 (1.3x our prior YE15E book value).

Nomura analyst Clifford Gallant (Buy, $199,000.00 PT per Class A share)

We are expecting operating EPS of $2,242 and book value up 1.7% since 12/31/13 to $137,215. Among the highlights, we expect GEICO to show 8% premium growth with a 94.5% combined ratio as the best operating model in the business continues to gain share. In reinsurance, we expect a good quarter as peers have reported low catastrophe quarters. We expect BNSF to report operating earnings growth of approximately 8% as demand for rail transport continues to surge in the U.S. The manufacturing and service businesses should report double-digit earnings growth, and we expect to see a full quarter of Heinz.

As was the case last year, we expect succession will be a popular topic with various angles on the issue to be asked. The investment roles appear to be successfully filled by Mr. Combs and Mr. Weschler, and we view there to be several strong operating CEO candidates, including Mr. Matt Rose, Mr. Ajit Jain, and Mr. Greg Abel. We would also stress that as the company grows and buys in 100% interests of strong earnings and cash flow producers, we increasingly see the future value of Berkshire dependent upon the success of those businesses and not the ability of senior management to pick stocks.

We look forward to updates on GEICO and its interest in telematics. Also, we are looking forward to an update on the expansion into commercial insurance by National Indemnity. Previously, the CEO has suggested that the growth in float will likely slow, thus we look for an update on that viewpoint.

KBW analyst Meyer Shields (Market Perform, $180,599.00 PT per Class A share)

Another year, another missing invitation to Omaha. While we can't know for sure, we presume our exclusion from the panel from which Warren Buffett and Charlie Munger select analysts to ask questions at Berkshire Hathaway's annual meeting has something to do with our occasionally critical analysis.

We have some operational questions, of course, but more important, we caution investors to consider whether this apparent message control limits their understanding of a company whose disclosure isn't, in our opinion, keeping up with its $300 billion market cap size. This is especially important in light of succession concerns that surround the stock.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
BRK.A $214,150.00 0.30%
BRK.B $142.68 0.25%
AAPL $114.64 -3.21%
FB $94.06 -0.08%
GOOG $629.25 -0.31%

Markets

Chart of I:DJI
DOW 17,550.69 -47.51 -0.27%
S&P 500 2,093.32 -4.72 -0.22%
NASDAQ 5,105.5460 -9.8360 -0.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs