Berkshire Hathaway Credit Rating Retained, Outlook Upped by S&P - Analyst Blog

Warren Buffett's Berkshire Hathaway Inc. (BRK.B) saw its credit rating reiterated by Standard & Poor's (S&P). The outlook was, however, moved to stable from negative as the credit review agency reevaluated the conglomerate.

The ratings that were kept intact include Berkshire Hathaway's counterparty credit of ‘AA/A-1+' and the insurance financial strength rating of ‘AA+'.

The rating affirmation accounts for Berkshire's dependence on its strong core insurance operations for most of its dividend income. The strong insurance business track has helped the company in building a solid capital position. With a wide moat, the insurance units have managed to fund large investments in equity or for buyouts.  

The S&P is, however, concerned since some of Berkshire Hathaway's insurance units are riskier than other insurers because of their large equity investments that can be volatile. The S&P also said that the company's capital position could also be hurt by a large acquisition or occurrence of investment losses. Then again, considering the past performance of Berkshire Hathaway's operating units, the agency believe expects it to successfully tide over uncertainties.  

Last May, Berkshire Hathaway saw its credit rating pulled down a notch by S&P and also had a negative outlook.

At present, the S&P's stable outlook on the rating implies rare chances of ratings going up or down in the near term sans any major factor affecting the company.

The rating agency, however, warned of a possible downgrade if the company's suffers capital drain from investment losses.

Earlier this month, another major rating agency – A.M. Best Co.– affirmed the investment grade ratings of a number of insurance units of Berkshire Hathaway with a stable outlook.

Financial strength and credit ratings, intended at measuring a company's ability to meet policyholder obligations, are important factors affecting public confidence and creditworthiness of a company, and hence its competitiveness. Securing an investment grade debt rating with a stable outlook reflects optimism on the company.

Other stocks

Berkshire Hathaway carries a Zacks Rank #2 (Buy). Other players from the same industry such as Endurance Specialty Holdings Ltd. ENH, AmTrust Financial Services, Inc. AFSI and Federated National Holding Company FNHC are also worth considering. All these stocks sport a Zacks Rank #1 (Strong Buy).
 

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