A Rare Upgrade For Berkshire Hathaway & Warren Buffett (BRK-B)

Berkshire Hathaway Inc. (NYSE: BRK.B) does not get new analyst calls all that often, so when a new call comes up or when a change in ratings comes up it really tends to stand out like a sore thumb.  This morning came a call from Zacks Investment Research as the BULL OF THE DAY.

The report cited a recent gain of 36% in earnings, with higher operating income across all the business segments except in the finance and financial products operations. The sectors which were noted as performing well were Insurance, Railroad, Utilities and Energy, Manufacturing, Service and Retail.

The growth engine was labeled as the property and casualty insurance businesses with a contribution of approximately 40% of its 2010 operating income.  Another favorable note for the segment was that it maintains capital strength at exceptionally high levels.

So, what is worth?  Apparently it is worth $91.00 per share and Zacks has an “Outperform” rating on Mr. Buffett’s company.  What is interesting is that this $91.00 figure is a 6-month target rather than a one-year price target.  What does this translate to for valuation? The projection is roughly 13.2-times Zacks’ earnings estimate for 2011 and it implies a total return of about 17% in that period.

We would note that there may be one issue with this report, and that is that Warren Buffett himself has always said to watch the firm’s stated book value per share.  The reason behind that is that he admitted that Team Buffett & Munger could effectively make earnings almost anything they wanted to in any single quarter because of its ability to lock-in gains or losses from its vast investment portfolio or by incurring or pushing out charges on assets. Merger expenses could also alter those quarterly figures.

Mr. Buffett made some significant changes to his investment holdings this last quarter, and here were his full equity holdings.

Shares closed Thursday at $77.81 and the 52-week range is $65.35 to $87.65, so if Zacks is right then Berkshire Hathaway is heading for a new year high.

JON C. OGG