UBS has initiated Berkshire Hathaway (BRK-A) with a “Buy” rating.
“We believe that the current uncertain economic and market environment plays into the hands of BRK, with its structural advantages of permanent capital, strong cash generation and industry-leading portfolio of businesses,” UBS’s Brian Meredith said. “This enables BRK to make acquisitions and/or invest in its operating units despite challenging environments, positioning it to grow earnings and book value faster than the S&P 500.”
Berkshire Hathaway is the insurance giant run by billionaire Warren Buffett.
Despite being one of the largest companies in the world, Berkshire is not widely covered on Wall Street.
Buffett is most popular for his savvy investments in individual companies, which has enabled the firm’s book value to rise faster than the stock market. For investors, this actually exposes the company to key-man risk, which is greater for companies that derive significant value from one or a few important players in the C-suite.
Now 85-years-old, Buffett has been confronted with a lot of questions regarding succession planning.
Meredith addressed this concern in his note.
“First, we believe that any Buffett premium built into BRK’s shares has declined over time as Berkshire has shifted from an insurance and investment organization into a diversified conglomerate,” he said. “Second, the structural advantages that exist today at the company will remain. Third, as a conglomerate of leading businesses, Berkshire has become much less reliant on Buffett’s stock-picking skills to generate returns than it was in earlier years.”
In other words, Meredith believes that Berkshire is increasingly being valued based on its own merits as a corporation and less so based on the premium it used to command by having Buffett at the helm.
“While Buffett’s superior capital allocation skills and market “clout” would be missed, as long as the culture does not change, we would expect the company to continue to outperform,” Meredith said.
Meredith assigned a 12-month price target of $244,500 on the company’s A-shares. Currently, shares are trading at around $210,300.
Sam Ro is managing editor at Yahoo Finance.
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- Berkshire Hathaway
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