Berkshire Hathaway Inc. (NYSE:BRK.A) posted a strong third-quarter print on November 4th that outclassed Barclays analyst Jay Gelb‘s expectations in terms of its key business segments, particularly underscoring the company’s Manufacturing, Service, and Retail unit’s 45% year-over-year climb, as well as Utilities and Energy unit’s 8% year-over-year surge.
In reaction, the analyst reiterates a Buy rating on BRK.A with a $249,000.00 price target, which represents a 13% increase from where the shares last closed. Additionally, the analyst has a price target of $166 per B share.
For the third quarter, thanks to a $2.3 billion addition from the “redemption” of Berkshire’s investment in Wrigley preferred stock, BRK.A’s book value per share benefited, rising 2.4% quarter-over-quarter to $163,783 per A share and $109.19 per B share, which matches the analyst’s projection. Yet, insurance earnings took a 15% year-over-year dip, although Gelb did anticipate this in his forecast. Nonetheless, GEICO’s underwriting results were “worse” than the analyst had expected. Though the BNSF railroad earnings dropped 11% year-over-year, the results were stronger than the analyst had projected, thanks to a revenue dip that was softer than anticipated. The Finance & Financial Products unit’s earnings rose 6% year-over-year, as for the most part expected.
Gelb notes, “Based on our initial analysis, Berkshire did not sell any WFC shares (its largest single equity position) during 3Q although we await Warren Buffett’s updated view.”
Meanwhile, the company’s third-quarter operating EPS grew 7% year-over-year, outperforming Gelb’s outlook modeling a 2% gain. On back of the results, Gelb raises his 2016 EPS projection from $10,633 per A share to $10,763 and adjusts $7.09 per B share to $7.18. Gelb maintains his 2017 EPS projection of $11,319 per A share and $7.55 per B share.
From a bullish standpoint, the analyst asserts, “BRK shares are currently undervalued, in our view.”
“Berkshire Hathaway faces ongoing earnings headwinds from its BNSF railway as well as the legacy industrial and manufacturing businesses, but we anticipate a recovery in earnings growth in 2017. On a positive note, the company’s intrinsic value should benefit from substantial acquisitions including Kraft Heinz as well as Precision Castparts (its largest deal ever). Mr. Buffett intends to remain at the helm for around another decade, and his succession plan is in place. Berkshire currently has $85bn of cash, which implies at least $60bn would be immediately deployable for acquisitions based on our estimates,” Gelb surmises.
As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, five-star analyst Jay Gelb is ranked #139 out of 4,181 analysts. Gelb has a 71% success rate and earns 8.3% in his yearly returns. When recommending BRK.A, Gelb gains 2.7% in average profits on the stock.
TipRanks analytics indicate BRK.A as a Buy. Out of two analysts polled by TipRanks, both are bullish on Berkshire stock. With a return potential for nearly 13%, the stock’s consensus target price stands at $248,250.00.