No. of Recommendations: 13
Berkshire Hathaway shares are up in
price nearly 25% thus far in 2024. This
doesn’t come as much of a surprise, given
the company’s solid recent earnings performance. The shares have handily outdistanced the broader S&P 500 Index, it
should be noted.
The insurance giant posted solid
June-quarter results, while the outlook for the remainder of the year is
quite promising. Digging deeper, earnings from operations, which excludes capital gains and losses from the investment
portfolio, clocked in at $5.38, which was
16% above the year-earlier tally. The company’s insurance division was the clear
winner during the period, with underwriting income increasing more than 80% on a
year-over-year basis, to almost $2.3 billion.
Berkshire benefited from healthy pricing
gains on existing policies, new business
wins, and favorable loss trends. Furthermore, investment income increased 40%,
thanks to a higher level of invested assets
and favorable bond yields. Most of the conglomerate’s other units registered a slight
decline relative to last year. We look for
the story to remain largely the same over
the back half of the year, with the third
quarter eking out a gain against a tough
2023 comparison.
We look for the bottom line to take a
step back next year, though against a
very difficult comparison. While fundamentals in the insurance segment ought to
remain strong next year, likely lower bond
reinvestment rates might well slow growth
in investment income. Furthermore, some
of the company’s units should feel the effects of a likely slowing economy.
We forecast earnings per share in excess of $23 by the 2027-2029 time
frame. The company’s diversification
ought to help support earnings gains over
the long haul.
These shares are a middle-of-the-road
selection at the present valuation.
They are ranked to keep pace with the
broader-market averages in the year
ahead, while long-term gains potential is
not overly exciting. However, acquisitions,
which aren’t included in our projections
and have been an integral part of the company’s growth strategy, could add meaningfully to our estimates.
Alan G. House August 30, 2024
