What Wall Street is taking away from Warren Buffett's annual letter
Over the weekend, Berkshire Hathaway released its fourth quarter results, 2016 annual report, and CEO Warren Buffett’s annual letter to shareholders.
“Berkshire’s 2016 shareholder letter was consistent with our expectations and did not include any major new announcements,” Barclays Jay Gelb said.
Gelb reiterated his Overweight rating on the company, although he maintains a neutral rating on the U.S. insurance industry. He currently has a price target of $295,000 for A shares and $197 for B shares.
“In 2016 Berkshire’s insurance unit reported an underwriting profit for the 14th consecutive year and continues to generate substantial no-cost float of $92 billion available for investing (increasing to over $100 billion including an AIG reinsurance transaction),” Gelb wrote. “In an improving economy, Berkshire should deliver strong earnings, returns and book value per share growth. Mr. Buffett continues to actively seek large acquisitions (as evidenced by KHC’s recent unsuccessful takeover bid for Unilever) as well as bolt-on deals to supplement organic growth.”
Similarly, UBS analysts were satisfied with what they saw. In a new research note to clients, they reiterated their Buy rating on the stock, their $281,500 price target for Berkshire Hathaway (BRK-A) A shares, and their $188 target for B shares (BRK-B).
The analysts, led by Brian Meredith, expect that growth improving at insurer GEICO and railroad BNSF is “likely to drive strong earnings improvement in 2017.”
Elsewhere, value investor Whitney Tilson, who runs hedge fund Kase Capital, boosted his price target for Berkshire’s A shares.
“My estimate of Berkshire’s intrinsic value has now reached $300,000/A share, based on $171,000/share in investments and a 10 multiple of pre-tax operating earnings (including insurance earnings) of $12,900. $171 + $129 = $300,” Tilson wrote in an email distributed to other investors.
Berkshire A shares currently trade at around $256,200. B shares trade at around $170.
Investors continue to await more clarity regarding succession planning. Buffett is 86 years old.
“No update on Buffett’s CEO succession plans although we would ultimately expect a seamless transition,” Gelb said.
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Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.
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