Fool Research:"Berkshire: 'still room for appreciation in short & long term.'"
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>>>DECEMBER 20, 2000
Berkshire Hathaway
Berkshire Hathaway Continues Acquisition Spree
By Zeke Ashton (ZAshton@Fool.com)
REPORT OVERVIEW
Berkshire Hathaway shows signs of recovery in the third quarter.
Berkshire Hathaway (NYSE: BRK.A) delivered strong earnings growth in the third quarter. Earnings per share increased 89.5% on net income of $797 million, and the quarter’s operating cash flow of $940 million almost equaled the $943 million in operating cash produced by the entire first half. Much of the earnings growth, however, came from realized investment gains.
An improving insurance environment and new acquisitions should make for a strong 2001.
With the reinsurance market improving, Berkshire should benefit from better performance from the ailing General Re. In addition, Berkshire expects National Indemnity to produce several large deals in the coming months that will result in as much as $3 billion in insurance premiums.
Berkshire should therefore see exceptional premium and float growth, as well as improved profitability, from the insurance operations in 2001.
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NOW WHAT?
While Berkshire’s stock hit a new 52-week high in December, the acquisition of seven companies in 2000 will likely result in large sales and earnings growth that should continue to move the stock price.
In combination with broad-based improvement from the insurance operations, Berkshire should achieve record earnings for the year and modest growth and improved profitability in 2001.
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INVESTING OUTLOOK
Berkshire Hathaway’s stock is now over 60% above its low in March, and hit a new 52-week high of $70,000 per A share and $2,319 per B share in mid-December. This in a year in which the S&P is under water by 10% and the Nasdaq has lost half its value since March.
With the insurance operations expected to substantially improve in 2001, and the newly acquired companies expected to generate large percentage increases in revenues, earnings, and cash flow, Berkshire Hathaway looks to be positioned very strongly heading into the fourth quarter and 2001.
While the March low prices are starting to look like a one-time opportunity, Berkshire Hathaway’s current stock price still leaves room for appreciation in both the short and long term.
Furthermore, Berkshire Hathaway represents a relatively safe haven for investors looking to reduce risk in the coming year.
Reflecting my optimism for continued outperformance of Berkshire’s stock versus the S&P 500 index, I’ll be keeping Berkshire Hathaway’s overall investment rating at 3.5 jester caps.<<< |
