No. of Recommendations: 0
Berkshire Hathaway is on pace for a
solid earnings improvement this year.
The company's insurance operations have
enjoyed a strong first half of the year, generating underwriting income of nearly $2.2
billion, compared to just shy of $900 million during the like period of last year.
Furthermore, investment income
catapulted to $4.3 billion compared to just
under $3.1 billion last year. We believe the
latter reflects improved reinvestment rates
on bonds and an increased invested asset
base. Furthermore, the company has also
enjoyed a robust investment and derivative gain this year ($25.9 billion) relative
to a more than $53 billion loss in 2022.
While this isn't part of recurring earnings,
it does have an impact on shareholders
equity. We look for the trends to remain
largely the same during the back half of
the year. Berkshire, by and large, has
been relatively unscathed by the sharp increase in weather-related catastrophe
losses so far this year.
We look for results to take a step back
next year, however, we believe this requires a bit more color. Berkshire has
had all of its ducks in a row through the
first six months of 2023 and assuming the
pattern holds true, it will likely make for a
difficult comparison as we turn the
calendar to 2024. Berkshire has a lot of
moving parts, more so than the typical insurer, and a downturn in any one of the
company's segments will make matching
2023's likely earnings tally difficult.
We look for earnings per share in the
neighborhood of $16.00 by the 2026-
2028 time frame. Our cautious optimism
is based on a decent economic backdrop
over that period. Likely profitable underwriting operations augur well for longterm earnings advances.
Though we like the Berkshire
Hathaway story, new investors need
not rush in at recent price levels.
While these shares have pulled back in
price some over the past three months, appreciation potential is limited over the
next 18 months ahead, while 3- to 5-year
prospects are unexciting as well. Acquisitions, which aren't included in our estimates and have been an integral part of
the company's long-term growth strategy,
could add meaningfully to our projections.
Alan G. House September 1, 2023
