Saturday is a big day for Berkshire Hathaway (BRK.B) investors and the rest of the financial world, as CEO and chairman Warren Buffett will release his annual letter to shareholders. Buffett is arguably the biggest name on Wall Street (even as he operates out of an Omaha, NE, office). His letter Saturday is expected to discuss Berkshire’s major business operations and stock holdings, as well as give an update for the future.
This comes at a pretty opportune time, following Kraft Heinz’s (KHC) terrible earnings results, which sent the stock plunging 27% (Berkshire owns about 27% stake in KHC).
As a result of the KHC earning debacle, Barclays analyst Jay Gelb reiterates a Neutral rating on BRK.B with $250 stock price target, which still implies about 24% upside from Friday’s closing price. (To watch Gelb’s track record, click here)
Gelb says he is lowering his “4Q 18 operating EPS estimate for Berkshire Hathaway as a result of KHC’s reported surprise net loss of $12.6bn due to KHC’s substantial write downs of goodwill and intangible assets.” Adding to the estimate change is other negative impacts on Berkshire, including “substantial catastrophe losses for the global P&C insurance industry,” following Hurricane Michael and California wildfires.” Overall Gelb’s EPS estimate was slashed from $3,522 to $1,726 per Class A share.
Moving forward, Gelb expects “Berkshire’s linked-quarter book value per share to decline by 7.2% to $212,330 per A share ($141.55 per B share) which also includes the negative impact of 4Q equity market performance as well as our assumption of $1.5bn of share buybacks.” But the analyst does expect a “rebound in book value per share in 1Q if year-to-date equity market gains can be sustained.”
On the impending letter to shareholders, the analyst anticipates that “Warren Buffett could discuss include his succession plans; opportunities to deploy $80+bn of excess cash in acquisitions, additional equity investments or share buybacks; his views on substantial global catastrophe events; and Berkshire’s capital-intensive businesses including the BNSF railroad as well as the Energy unit.”
If we step back and look at the bigger picture, we can see that overall BRK.B has a ‘Buy’ analyst consensus rating. In the last 12 months, the stock has received 3 ‘buy’ ratings and just 1 ‘hold’ rating. With an average analyst price target of $231.66, analysts are projecting upside potential of nearly 15% from the current share price. Berkshire’s Class A stock price is currently trading at more than $300,000 per share, which makes it unattainable for the average investor. This is by design; Buffett has said he does not want “anybody buying Berkshire thinking that they can make a lot of money fast.”