Berkshire Hathaway Stock: What to Look for in Q3

Warren Buffett's sprawling conglomerate will likely see profits fall, but don't despair

By John Divine, InvestorPlace Assistant Editor

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Berkshire Hathaway Inc. (BRK.A, BRK.B) reports third-quarter earnings after markets close on Friday, and it’s the long-term picture that should be in focus for Berkshire Hathaway stock holders.

Berkshire Hathaway Stock: What to Look for in Q3 Warren Buffett’s conglomerate has two classes of stock, with Class A shares going for over $200,000 a pop and Class B shares trading around $140. Needless to say, most investors own BRK.B shares. If you own BRK.A shares, you should just have your butler read this to you.

Although Berkshire Hathaway owns a large portfolio of publicly traded stocks — including large stakes in American Express (AXP), Coca-Cola (KO) and IBM (IBM) — it’s also a big player in the insurance and energy markets, so we’ll take a look at those businesses, too.

Berkshire Hathaway Stock’s Q3 Earnings

Wall Street analysts are calling for earnings per share of $2,760.20 for BRK.A shares, or $1.85 per share for the far more affordable Class B shares. That’s nearly 4% less than the $1.92 per share it made in Q3 2014.

One thing that will likely weigh on Berkshire Hathaway stock’s EPS is its insurance division, which will likely suffer higher costs if results from competitors are any indication.

BRK owns Geico, and one of Geico’s most formidable rivals is Allstate (ALL), which saw the frequency of property damage and bodily injury claims increase by 8.9% and 6.4%, respectively in Q3. Allstate also saw the claim severity, which describes the average size of claims, rise last quarter.

On top of that, insurance giant AIG (AIG) whiffed on earnings earlier this week, earning 52 cents a share against the $1.03 consensus. That said, AIG’s business is less comparable to Berkshire’s insurance arm than Allstate’s is.

Berkshire Hathaway’s energy investments won’t be churning out record profits, that’s for sure. That said, it’s not like BRK is into the oil exploration business; rather, it has investments in utility companies, which haven’t been hit to nearly the extent domestic drillers have.

Lower energy prices will result in lower rail traffic for Berkshire’s railroads, but simultaneously result in lower fuel costs, so it’s tough to say exactly how that’ll impact Berkshire’s bottom line.

More important than whether Berkshire Hathaway stock beats on earnings in Q3 is the company’s long-term outlook. Precision Castparts (PCP) should figure prominently into Berkshire’s long-term prospects: At $37 billion, the aerospace parts manufacturer was BRK’s largest acquisition ever.

Bottom Line on Berkshire Hathaway Stock

At 85 years young, Berkshire CEO Warren Buffett isn’t the youngest guy in the room, and his right hand man Charlie Munger, 91, is no spring chicken either. At this point, any additional insight given into a succession plan will be far more meaningful to investors than a single quarter’s results.

Buffett has remained tight-lipped on that matter, though, so there’s no reason to expect him to switch gears and suddenly make an announcement, especially considering he’s in good health at the moment.

I wouldn’t try to “play” BRK before earnings. It’s got a middling, unpredictable record of beating or disappointing on earnings over the last few years and a management that cares far more about the next 13 years than the next 13 weeks.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/berkshire-hathaway-stock-brk/.

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