Markets

Should You Dump Berkshire Hathaway (BRK.B) Shares Now?

A list of stock prices rising and declining in value
Credit: Shutterstock photo

On May 31, 2016, we issued an updated research report on Berkshire Hathaway Inc . BRK.B .

The insurer in the first quarter delivered operating earnings that missed the Zacks Consensus Estimate and declined year over year. The results suffered owing to soft performance at the Railroad, Utilities and Energy segments. With respect to the surprise trend, this Zacks Rank #4 (Sell) insurer delivered negative surprises in three of the last four quarters, with an average miss of 8.4%.

Berkshire Hathaway is a conglomerate with nearly 90 subsidiaries and is engaged in businesses ranging from ice-cream to insurance. Though the company runs heterogeneous activities, its property and casualty insurance business remains the frontrunner.

Berkshire's most important non-insurance subsidiary BNSF continues to incur capital expenditure to improve its performance. The company's capital expenditure totaled $5.7 billion in 2015 and expects about $6.6 billion to be spent in 2016. This huge capital expenditure will drain the segment's margin over the coming quarters.

Also, being a property and casualty insurer, the company is exposed to catastrophe losses.

Nonetheless, Berkshire Hathaway's economically sensitive non-insurance businesses - utilities and energy, and manufacturing, service and retail - are performing favorably. The Finance and Financial Products segment is also performing well, having recovered from a soft housing market. Berkshire Hathaway's inorganic growth story seems impressive and is expected to be accretive to earnings going forward.

The insurer boasts a strong capital position. Also, Warren Buffett's unique skills have created tremendous value for shareholders over the last 51 years.

The Zacks Consensus Estimate too trended downward in the last 30 days. It is down 1.6% to $7.33 for 2016 and 0.5% to $7.93 for 2017.

Stocks to Consider

Though we are presently cautious on Berkshire Hathaway, investors can look at other property and casualty insurers like Cincinnati Financial Corp. CINF , Markel Cor. MKL and National General Holdings Corp NGHC . Each of these stocks sports a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report

CINCINNATI FINL (CINF): Free Stock Analysis Report

MARKEL CORP (MKL): Free Stock Analysis Report

NATIONAL GNL HL (NGHC): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

CINF BRK.B MKL

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More