On Dec 5, 2013, we are downgraded our recommendation on
Berkshire Hathaway Inc.
) to Neutral from Outperform following third quarter earnings
miss wherein the company gave a negative surprise of 6.9%. The
company carries a Zacks Rank #3 (Hold).
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
CINCINNATI FINL (CINF): Free Stock Analysis
CNA FINL CORP (CNA): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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Berkshire reported third quarter 2013 operating earnings of $1.49
per share, missing the Zacks Consensus estimate of $1.60 per
share. The earnings miss came from a decline in underwriting
income from the company's insurance business, due to cat loss
suffered during the quarter.
Berkshire earnings are subject to volatility, given its exposure
to catastrophes. Going forward, we believe that the timing and
magnitude of catastrophe and large individual losses will
continue to produce significant volatility in its property and
casualty underwriting results.
Also the succession of Warren Buffett, the CEO and Chairman of
Berkshire remains a concern with the investors. Though
Buffett has put in place a succession plan and has chosen a
successor, the names of the to-be CEO remain under a veil.
Therefore, there remains an air of uncertainty regarding the
performance of the company under a new CEO.
Moreover the company's huge investment in derivative contract
imparts volatility to the company's earnings.
Following earnings release, Zacks Consensus Estimate for 2014
earnings went down as 1 out of 2 its estimates moved south by
0.5% to $6.22 per share.
Nevertheless, Berkshire has shown strong favorable
operating performance over the past many quarters, with growth
coming in from all its segments.
Berkshire's economically sensitive non-insurance businesses -
utilities and energy, and manufacturing, service and retail - are
performing well after suffering substantial earnings decline in
the recent past due to the weak economy.
Its Finance and Financial Products segment is also performing
well, with improving trends in this business segment given that
the housing market is improving gradually.
Other better ranked stocks
Cincinnati Financial Corp.
CNA Financial Corporation
) all with Zacks Rank #1 (Strong Buy) are worth investing in.