Barclays on U.S. Insurance/Non-Life: Berkshire Operating EPS Growth Likely to Slow; Valuation Increasingly Attractive
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Rating Summary:
4 Buy, 5 Hold, 1 Sell
Rating Trend:
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Today's Overall Ratings:
Up: 4 | Down: 16 | New: 10
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Barclays on U.S. Insurance/Non-Life: Berkshire Operating EPS Growth Likely to Slow; Valuation Increasingly Attractive
Barclays analyst says, "Berkshire's (NYSE: BRK-A)(NYSE: BRK-B) 2Q11 earnings were slightly lower than we expected driven by weaker than anticipated earnings growth in Manufacturing, Service & Retail earnings and a higher than projected effective tax rate. However, book value growth was higher than we estimated due to stronger than forecast market-to-market investment gains. We expect solid operating results at Berkshire Hathaway to continue, although earnings growth could slow after 2012 barring another large acquisition. Berkshire has high gearing to economic conditions and equity markets. Also, CEO succession risk remains elevated in our view due to a lack of a known successor to Warren Buffett. Berkshire's shares appear attractive at 1.08x book value, although recent equity market declines as well as the impact of a weak economic recovery continue to weigh on its shares."
"We are lowering our FY11 EPS estimate for Berkshire to $4.35 from $4.45 to reflect lower than expected 2Q11 results. No change to our 2012 EPS estimate of $5.45 in 2012. Based on current equity market performance, Berkshire's 3Q11 book value could fall 1% vs 2Q11 assuming $6bn of potential mark-to-market investment losses due to declining values of Berkshire's equity investments and Goldman Sachs (NYSE: GS) warrants. By YE12, we expect book value to grow to $73 per B share. We are lowering our price target to $85 (1.2x 2012E BV of $73) from $92 (1.3x 2012E BV of $73) due less core earning power than we projected as well as volatile equity markets and continued economic weakness."
Barclays lowers price target on BRK-A shares from $138,000.00 to $127,500.00. FY11/12 EPS estimates were also lowered from $6669.00 to $6517.00 and $8178.00 to $8168.00, respectively."
Barclays analyst says, "Berkshire's (NYSE: BRK-A)(NYSE: BRK-B) 2Q11 earnings were slightly lower than we expected driven by weaker than anticipated earnings growth in Manufacturing, Service & Retail earnings and a higher than projected effective tax rate. However, book value growth was higher than we estimated due to stronger than forecast market-to-market investment gains. We expect solid operating results at Berkshire Hathaway to continue, although earnings growth could slow after 2012 barring another large acquisition. Berkshire has high gearing to economic conditions and equity markets. Also, CEO succession risk remains elevated in our view due to a lack of a known successor to Warren Buffett. Berkshire's shares appear attractive at 1.08x book value, although recent equity market declines as well as the impact of a weak economic recovery continue to weigh on its shares."
"We are lowering our FY11 EPS estimate for Berkshire to $4.35 from $4.45 to reflect lower than expected 2Q11 results. No change to our 2012 EPS estimate of $5.45 in 2012. Based on current equity market performance, Berkshire's 3Q11 book value could fall 1% vs 2Q11 assuming $6bn of potential mark-to-market investment losses due to declining values of Berkshire's equity investments and Goldman Sachs (NYSE: GS) warrants. By YE12, we expect book value to grow to $73 per B share. We are lowering our price target to $85 (1.2x 2012E BV of $73) from $92 (1.3x 2012E BV of $73) due less core earning power than we projected as well as volatile equity markets and continued economic weakness."
Barclays lowers price target on BRK-A shares from $138,000.00 to $127,500.00. FY11/12 EPS estimates were also lowered from $6669.00 to $6517.00 and $8178.00 to $8168.00, respectively."
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