Berkshire Hathaway Inc.’s (BRK.B) fourth-quarter top and bottom lines surpassed the estimate and improved year over year, banking on better results of Insurance, Berkshire Hathaway Energy Company and non-controlled businesses. Results also benefited from a gain in investment income as Treasury Bill yields improved and the insurer increased its holdings of these highly liquid short-term securities.
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Berkshire Hathaway is a conglomerate with more than 90 subsidiaries engaged in diverse business activities. About 40% of Berkshire’s operating earnings came from its insurance underwriting and insurance investment subsidiaries in 2024. Other operations, including utilities and energy, and manufacturing, service and retail, combined accounted for the remaining 60%.
BRK.B: An Outperformer
BRK.B shares have gained 9% year to date, outperforming the industry’s 4.4% growth, the sector’s increase of 4.3% and the S&P 500 composite’s rise of 0.9%.
Berkshire vs. Industry, Sector & S&P YTD
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However, Berkshire shares are trading well above the 50-day moving average, signaling a short-term bullish trend and making it an attractive option for investors from a technical perspective.
BRK.B Price Movement vs. 50-Day Moving Average
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Based on short-term price targets offered by four analysts, the Zacks average price target is $503 per share. The average suggests a potential 1.8% upside from last closing price.
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BRK.B Shares are Expensive
BRK.B shares are trading at a price-to-book multiple of 1.69, higher than the industry average of 1.62X.
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This insurance behemoth has a market capitalization of nearly $1.1 trillion. The average volume of shares traded in the last three months was 4 million.
Yet, the stock remains attractively valued compared with other insurers like The Progressive Corporation PGR and The Allstate Corporation ALL.
Mixed Analyst Sentiment
The consensus estimate for 2025 has moved 2.2% north in the past seven days, reflecting analyst optimism.
Yet, the Zacks Consensus Estimate earnings for 2025 is pegged at $20.38, indicating a 7.4% year-over-year decrease despite 1.1% higher revenues of $375.4 billion.
The consensus estimate for 2026 earnings is pegged at $23.08, indicating a 13.2% year-over-year increase on 3.7% higher revenues of $389.2 billion. The expected long-term earnings growth rate is 7%.
Factors Favoring Berkshire
The Insurance business, which contributes around one-fourth to its top line, is poised to gain from increased exposure, prudent underwriting standards and better pricing. However, catastrophes affect its underwriting profitability and, in turn, its combined ratio.
Continued insurance business growth fuels an increase in float, drives earnings and generates maximum return on equity.
The Utilities and Energy, and Manufacturing, Service and Retail businesses are economically sensitive non-insurance businesses. Thus, their performances are linked with the health of the economy. Given improving economic health, these businesses are poised to grow.
The Utilities and Energy business has grown with increased revenue contributions from Burlington Northern SantaFe Corp. However, unfavorable changes in the business mix and lower fuel surcharge revenues are areas of concern. Lower fuel costs are expected to limit any downside. Nonetheless, demand for utilities is expected to be strong in the future and will drive earnings growth.
Collectively, these have driven revenues and facilitated margin expansion over the past many years.
With a huge cash hoard, we believe Berkshire Hathaway will successfully continue its acquisition spree, acquiring entities that have consistent earnings power and boast impressive returns on equity. At 2024 end, its partial-ownership holdings were valued at $272 billion. While big acquisitions open up more business opportunities for the company, bolt-on acquisitions ramp up the earnings of the existing business. The insurer has also started increasing its investment in Japan.
This insurer distributes wealth to shareholders through share buybacks. Berkshire Hathaway bought back shares worth $2.9 billion in 2024.
Berkshire’s Return on Capital
Return on equity (“ROE”) in the trailing 12 months was 7.7%, outperforming the industry average of 7.6%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.
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Its return on invested capital (ROIC) has increased every year since 2020. This reflects BRK.B’s efficiency in utilizing funds to generate income. However, ROIC in the trailing 12 months was 5.5%, lower than the industry average of 5.8%.
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What Should Investors Do Now?
Holding shares of Berkshire Hathaway adds dynamism to shareholders’ portfolios. The company has Warren Buffett at its helm, who has created tremendous value for shareholders over nearly six decades with his unique skills.
However, an expensive valuation and negative growth projection for 2025 keep us cautious.
Thus, investors who already hold Berkshire shares should continue to retain this Zacks Rank #3 (Hold) stock in their portfolio, while others can wait for some more time before investing in this behemoth.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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