Barclays Still Loves Berkshire Hathaway, But Notes 1 Risk

Barclays reiterated an Overweight rating on Berkshire Hathaway Inc.

Monday following the release of the company's annual shareholder letter. Analyst Jay Gelb commented that the company's Q4 operating earnings were below the firm's projections and were "driven by lower-than-expected earnings in both the insurance and non-insurance businesses although quarterly results can be lumpy." One of the items that interested analysts about Berkshire's future, however, were succession plans for CEO Warren Buffett, who indicated that "he now had the right internal person to become CEO the day after he dies or steps down, and that he or she should be relatively young," according to the analyst note. Gelb saw BH Energy chief Greg Abel or BNSF chairman Matt Rose as potential candidates for the CEO position. Also looking ahead, Gelb thought that upside on the stock would be limited if it moves from its current book value of 1.51x towards 2x. Buffett could, however, partner with other firms on acquisitions or establish a dividend and share repurchase program if it "is unable to attractively reinvest in the business." Despite the Q4 operating EPS coming in 13 percent below the analyst's outlook, Gelb raised Class B 2015 EPS estimates from $7.50 to $7.70 and 2016 EPS estimates from $8.10 to $8.35. The EPS revisions were largely due to "bolt-on deals" involving Duracell and auto dealer VanTyul. The analyst note was also positive on Berkshire's "leverage to an improving economy in its non-insurance business" and also saw "opportunities for accretive acquisitions" in the future. In terms of risk, Gelb mentioned that insurance earnings could decline modestly but that CEO succession remained the number one risk, "although less so since Buffett's succession plans are in place." Berkshire Hathaway Inc. Class B Shares recently traded at $146.84, down 0.39 percent.