On Monday, TD Cowen commenced coverage on shares of Berkshire Hathaway (NYSE:BRKa) (NYSE:BRK-A), assigning a Hold rating to the company. The firm highlighted the conglomerate's struggle with its non-insurance subsidiaries and the broader economic uncertainties.
Despite the robust performance of its insurance operations, Berkshire Hathaway's other business segments, such as the BNSF railroad and the BHE utilities business, have not met expectations. The BNSF railroad has been grappling with increased wages and a drop in revenue, while BHE has been under pressure due to liabilities from wildfire damages.
The conglomerate, which has a diverse portfolio including manufacturing, service, and retailing businesses, is also navigating through the challenges posed by persistent inflation in the U.S. economy. Still, the insurance segment remains a strong point, with GEICO, a top-three auto insurer, expecting high single-digit premium growth and 90%+ combined ratios in the years 2024 and 2025.
The Berkshire Hathaway Primary Group, which comprises commercial-focused independent insurers, is also seeing substantial growth, benefiting from favorable pricing and a strong position in the excess and surplus (E&S) market.
The Berkshire Hathaway Reinsurance Group (NYSE:RGA), recognized as a top global reinsurer, is well-positioned for managing cycles and is currently enjoying firm pricing conditions. Projections indicate mid-single-digit premium growth with 90%+ combined ratios for the next two years.
Moreover, Berkshire Hathaway's stock buyback strategy was discussed, noting that the company's directors are only likely to authorize repurchases if the stock price is deemed well below intrinsic value. This cautious approach to buybacks could suggest that Berkshire views its stock as approaching intrinsic value, especially considering the payout ratio on operating earnings was 24% in 2023, compared to 26% in 2022 and 98% in 2021.
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