Wall Street Weighs In On Berkshire Hathaway's Earnings

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) shares held up relatively well on Monday in a weak market after the company reported an 11% drop in second-quarter operating profit over the weekend.

The Numbers

Berkshire was able to overcome trade war headwinds to generate a 17% increase in revenue due to strong performance from its investment portfolio. Berkshire reported operating profit per A-class share of $3,757, missing consensus analyst expectations of $3,851.

Berkshire also reported $122.4 billion in cash and cash equivalents, driving traders and analysts to speculate on CEO Warren Buffett’s next big acquisition. Berkshire even dialed down its buybacks in the second quarter, repurchasing only $442 million in stock compared to $1.7 billion in the first quarter.

Voices From The Street

Morgan Stanley analyst Michael Phillips said Berkshire’s property and casualty insurance underwriting business struggled in the second quarter, missing his target by $333 million. Phillips said some traders may already be reading into Berkshire’s modest second-quarter buybacks.

“The company has recently cited a challenging environment for M&A, but this could certainly be a reason for the quarter's limited share repurchases,” Phillips wrote in a note.

CFRA analyst Catherine Seifert said Berkshire demonstrated across-the-board weakness in its three major insurance groups, including a 42% drop in GEICO profits. She said Berkshire is clearly not immune to the trade war, but its insurance business is even lagging most of its peer group as well.

“We think the combination of below-peer insurance underwriting results and trade-induced weakness in transportation and other economically sensitive units removes a catalyst from the dividend-less shares,” Seifort wrote.

Market Reacts

Berkshire shares traded lower by 0.9% following the report on Monday.

Morgan Stanley has an Equal-Weight rating and $217 price target for Berkshire B-class shares.

CFRA has a Hold rating and $212 target.

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Berkshire Hathaway CEO Warren Buffett in 2015. Public domain photo via Wikimedia.