Buffett's Earning Power Stalled: Barclays

Warren Buffett's Berkshire Hathaway may be a great stock, but its earnings power will stall until 2011, according to Barclays Capital.
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OMAHA, Neb. (

TheStreet

) -- Last week,

Berkshire Hathaway

(BRK.B) - Get Report

shares stalled at the $80 mark. Is the newest analyst rating on Berkshire Hathaway -- one of the first from the Street -- a sign that Berkshire Hathaway shares shouldn't reach much higher?

After climbing steadily since the famed

Warren Buffett

investment company was added to the S&P 500 Index earlier in 2010, shares hit the wall last week, falling from a 52-week high of $83.57 on March 8 to under $80 last Thursday. Last week was a tough one for Berkshire Hathaway in other respects, also, as

Buffett and Berkshire Hathaway were hit with a lawsuit from a disgruntled former manager who alleges he was fired by Buffett for being a whistleblower.

While Berkshire Hathaway shares nudged back above the $80 mark at the close on Friday, the Buffett shares did so just barely. Berkshire Hathaway shares were trading at $65 before its S&P 500 inclusion.

Still,

long-time investors in Berkshire Hathaway contend that shares of Buffett's company are significantly undervalued -- as much as 40% undervalued some investors say.

The Berkshire Hathaway investors are not in agreement with Barclays Capital analyst Jay Gelb, in terms of the level of Berkshire Hathaway's undervaluation. Barclay's Gelb added coverage of Berkshire Hathaway on Monday morning at an equal weight. Gelb's rating does include a price target of $88 for Berkshire Hathaway shares, which could give the Buffett shares a little boost after their stall last week at the $80 mark.

The Barclays price target is 9% above the close price from Friday. Berkshire Hathaway shares were up marginally on Monday morning in early trading.

At a larger level, though, the Barclays analyst cited concerns over Buffett's succession plans for Berkshire Hathaway, as well as the general outlook for the insurance business, in assigning an equal weight to Berkshire Hathaway shares, and in saying that earnings potential seemed "stalled" for Warren Buffett and his investment company.

Gelb's rating on Berkshire Hathaway shares was notable for being on the first ratings on the Buffett stock from a major Street firm. While

Berkshire Hathaway may have the best reputation among U.S. companies on Main Street, it has been hard to get a read from the Street on Buffett's company.

There are only a handful of analysts who cover Berkshire Hathaway, including analysts at Keefe, Bruyette & Woods and Morningstar. Most of the big Street firms have never covered the Buffett stocks due to their light trading, but that all changed with the 50-to1 stock split earlier this year and Berkshire Hathaway's inclusion in the S&P 500.

Barclay's rating on Berkshire Hathaway is one of the first looks at how the global securities firms view Buffett's stock, and how those views will affect trading in Berkshire Hathaway shares.

The Barclays analyst contends that even with the mega-purchase of

Burlington Northern Santa Fe

, Berkshire Hathaway's earnings power only has the potential to grow slightly in 2010 and 2011. Barclays' Gelb believes that Berkshire Hathaway shareholders may see a reduction in book value and a reduced return on equity for the next two years.

On other points, the Barclays rating was in line with the conventional wisdom about Berkshire Hathaway and Buffett. The Barclays analyst wrote that Berkshire Hathaway shares may erode with the eventual passing of Warren Buffett and the elimination of the "Buffett Premium."

However, Barclays' Gelb said that Buffett's likely successor, David Sokol, head of Berkshire Hathaway energy subsidiary MidAmerican Energy -- who also recently resurrected Buffett's floundering bet on NetJets -- would be an able Berkshire Hathaway CEO.P/>

-- Reported by Eric Rosenbaum in New York.

RELATED STORIES:

>>A Rare Moment of Bad Press for Buffett

>>Berkshire Owns Best Business Reputation

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