Berkshire Hathaway on Pace for Largest Percent Increase Since November 2022 — Data Talk

Berkshire Hathaway B (BRK.B) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term.

Over the past month, shares of this company have returned -1.9%, compared to the Zacks S&P 500 composite's +0.7% change. During this period, the Zacks Insurance - Property and Casualty industry, which Berkshire Hathaway B falls in, has lost 3.7%. The key question now is: What could be the stock's future direction?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to Earnings Estimates

Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For the current quarter, Berkshire Hathaway B is expected to post earnings of $3.98 per share, indicating a change of +1.5% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

The consensus earnings estimate of $19.60 for the current fiscal year indicates a year-over-year change of +14.1%. This estimate has changed -0.6% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of $19.91 indicates a change of +1.6% from what Berkshire Hathaway B is expected to report a year ago. Over the past month, the estimate has changed -0.4%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Berkshire Hathaway B is rated Zacks Rank #4 (Sell).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate:

12 Month EPS

Revenue Growth Forecast

Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.

For Berkshire Hathaway B, the consensus sales estimate for the current quarter of $88.3 billion indicates a year-over-year change of -5.4%. For the current and next fiscal years, $368.44 billion and $374.84 billion estimates indicate +1.1% and +1.7% changes, respectively.

Last Reported Results and Surprise History

Berkshire Hathaway B reported revenues of $93 billion in the last reported quarter, representing a year-over-year change of -0.2%. EPS of $4.68 for the same period compares with $4.96 a year ago.

Compared to the Zacks Consensus Estimate of $96.62 billion, the reported revenues represent a surprise of -3.75%. The EPS surprise was -2.7%.

Over the last four quarters, Berkshire Hathaway B surpassed consensus EPS estimates three times. The company topped consensus revenue estimates two times over this period.

Valuation

Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.

Comparing the current value of a company's valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.

Berkshire Hathaway B is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.

Conclusion

The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Berkshire Hathaway B. However, its Zacks Rank #4 does suggest that it may underperform the broader market in the near term.

Zacks Investment Research

Financial stocks fell in Monday afternoon trading with the NYSE Financial Index down 0.2% and the Financial Select Sector SPDR Fund (XLF) off 0.8%.

The Philadelphia Housing Index climbed 1.5%, and the Real Estate Select Sector SPDR Fund (XLRE) gained 0.7%.

Bitcoin (BTC/USD) declined 1.4% to $67,913, and the yield for 10-year US Treasuries dropped 7.5 basis points to 4.322%.

In economic news, new orders for US factory goods fell 0.5% in September, as expected in a survey compiled by Bloomberg, and following a revised 0.8% decrease in August.

In corporate news, B. Riley Financial-backed Franchise Group started voluntary Chapter 11 proceedings in the US Bankruptcy Court for the District of Delaware. B. Riley shares tumbled 13%.

Blackstone is in advanced talks to buy Retail Opportunity Investments , Reuters reported. Blackstone shares fell 0.6%, and Retail Opportunity jumped 6.2%.

Berkshire Hathaway shares fell 2.2%. The company reported Q3 earnings Saturday of $18,272 per class A share, swinging from a loss of $8,824 a year earlier. Revenue fell to $93 billion from $93.21 billion.

Berkshire Hathaway is one of the most mentioned companies in the U.S. across all news items in the past 12 hours, according to Factiva data. On Saturday, Berkshire Hathaway said its operating earnings fell 6% to $10.1 billion in the third quarter from $10.8 billion in the same period a year ago. The company didn't purchase any of its own shares in the third quarter. That compares with a buyback of $345 million in the second quarter and about $2.6 billion in the first quarter. Berkshire's total holdings of cash and equivalents rose $48 billion in the third quarter to a record $325 billion on Sept. 30, up from $277 billion on June 30. Dow Jones & Co. owns Factiva. (chris.wack@wsj.com)

Berkshire Hathaway (BRK.B) delivered third-quarter 2024 operating earnings of $10.1 billion, which decreased 6.2% year over year. The decrease was attributable to lower revenues coupled with higher costs.

Behind the Headlines

Revenues slipped 0.2% year over year to $93 billion, attributable to lower revenues at Insurance and Other as well as Railroad, Utilities and Energy.

Costs and expenses increased 0.7% year over year to $81.2 billion, largely due to an increase in Insurance and Other expenses. Higher losses and loss adjustment expenses, insurance underwriting expenses, cost of leasing and selling, general and administrative expenses fueled the increase. The figure was lower than our estimate of $85.9 billion.

Berkshire Hathaway Inc. Price, Consensus and EPS Surprise

Berkshire Hathaway Inc. price-consensus-eps-surprise-chart | Berkshire Hathaway Inc. Quote

Segment Performance

Berkshire Hathaway’s Insurance and Other segment revenues increased 9.9% year over year to $26.7 billion in the reported quarter on the back of higher insurance premiums earned, leasing revenues and interest, dividend and other investment income.

Insurance underwriting earnings increased 5.1% year over year to $5.6 billion.

Railroad, Utilities and Energy operating revenues decreased 9.1% year over year to $23.9 billion, primarily due to lower utility and energy operating revenues. The figure was lower than our estimate of $28.6 billion. Pre-tax earnings of Railroad increased 83.6% year over year to $3.2 billion.

Total revenues at Manufacturing, Service and Retailing decreased 0.8% year over year to $42.2 billion. Pre-tax earnings decreased 5.6% year over year to $4.2 billion.

Earnings from Manufacturing, Service and Retailing businesses decreased 5.1% year over year to $4.2 billion.

Financial Position

As of Sept. 30, 2024, consolidated shareholders’ equity was $629.1 billion, up 12.1% from the level as of Dec. 31, 2023. At quarter-end, cash and cash equivalents were $32.3 billion, down 4.1% from the level at 2023-end.

BRK.B exited the third quarter of 2024 with a float of about $174 billion, which increased $5 billion from the figure at the end of 2023.

Cash flow from operating activities totaled $26 billion in the reported quarter, down 25.4% from the year-ago period.

Berkshire Hathaway bought back shares worth $2.9 billion in the first nine months of 2024.

Zacks Rank

BRK.B currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

The Travelers Companies TRV reported third-quarter 2024 core income of $5.24 per share, which beat the Zacks Consensus Estimate by 38.2%. Total revenues increased 10.7% from the year-ago quarter to $11.84 billion, primarily driven by higher premiums, net investment income, fee income and other revenues. The top-line figure beat the Zacks Consensus Estimate by 1.4%.

Travelers’ net written premiums increased 8% year over year to a record $11.31 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $10.5 billion. Travelers witnessed an underwriting gain of $685 million against a loss of $136 million incurred in the year-ago quarter. The consolidated underlying combined ratio of 85.6 improved 500 bps year over year. The combined ratio improved 780 bps year over year to 93.2 due to an improvement in the underlying combined ratio and net favorable prior-year reserve development.

The Progressive Corporation’s PGR third-quarter 2024 earnings per share of $3.97 beat the Zacks Consensus Estimate of $3.40. The bottom line more than doubled year over year. Operating revenues of $19.5 billion improved 24.9% year over year and beat the consensus estimate by 2.6%.

Net premiums written were $19.5 billion in the quarter, up 25% from $15.6 billion a year ago. Combined ratio — the percentage of premiums paid out as claims and expenses — improved 340 bps from the prior-year quarter’s level to 89.

RLI Corp. RLI reported third-quarter 2024 operating earnings of $1.31 per share, beating the Zacks Consensus Estimate by 33.7%. The bottom line more than doubled year over year. Operating revenues for the reported quarter were $426 million, up 1.4% year over year. The top line beat the Zacks Consensus Estimate of $420 million.

Gross premiums written increased 13% year over year to $563.4 million. This uptick can be attributed to the solid performance of the Casualty (up 15.7%), Property (up 9.6%) and Surety segments (up 9%). Our estimate was $572.3 million. Underwriting income increased to $40.7 million from $4.2 million in the year-ago quarter. The combined ratio improved 910 bps year over year to 89.6. The Zacks Consensus Estimate for the metric was pegged at 96, while our estimate was 103.1.

Zacks Investment Research