Berkshire Succession Plan Fuels Uncertainty

Argus’ Stephen Biggar expressed a positive stance on Berkshire Hathaway Inc. BRK BRK, given the stock returns “have more than doubled those of the S&P 500 since 1965” at a CAGR pf 20.8 percent.

Biggar initiated coverage of the company with a Hold rating.

The analyst expects the company to deliver robust 10 percent earnings growth through 2017, up from the estimate of 5 percent for 2016, “as stronger economic conditions boost the company’s manufacturing, insurance and energy businesses.”

Succession Plan Concerns

However, Biggar also expressed concern regarding the succession plan for Chairman and CEO Warren Buffett, who is now 86 years old, as well as that for Vice Chairman Charlie Munger, who is now 93 years old.

The analyst pointed out that both Buffett and Munger have been critical to Berkshire Hathaway’s success and will likely be difficult to replace.

Biggar also mentioned that the company has consistently grown through acquisition, usually paying cash for acquisition candidates in the $5 billion–$20 billion range.

Since the company does not pay any dividends, the analyst stated that investors in Berkshire Hathaway need to rely on capital appreciation.

“That said, management’s interests are well aligned with those of shareholders, as insiders own just over 40 percent of the outstanding stock,” Biggar went on to say.