If Warren Buffett is considered the world’s greatest investor of the modern era, maybe he knows a thing or two about value. His Berkshire Hathaway Inc. (NYSE: BRK-A) is an empire in and of itself, and it is one of the most valuable companies in America. What makes Berkshire Hathaway unique among the mega-caps stocks is that very few analysts on Wall Street are willing to issue formal ratings and price targets. Maybe there are just too many moving parts that complement each other at times or move in different ways throughout the economic cycle.
JPMorgan is joining just a handful of analysts with a recommendation on Berkshire Hathaway. The firm’s Sarah DeWitt issued a new Overweight rating for Berkshire Hathaway on both its A shares and B shares. DeWitt issued price targets of $315,000 on the former (versus a $268,450 prior closing price) and $210 on the latter (versus a $178.93 prior close).
The upside target prices represent gains of 17.3% on both classes of stock. What matters here is that at this stage of the bull market is that new Outperform and Buy types of ratings generally come with upside of about 8% to 10%. Sometimes they go up to 15% or more, but that is using a total return that includes a would-be capital gain and the benefit of a dividend.
While Berkshire Hathaway buys lots of stocks on its own, and it loves buying dividend stocks, the company pays no dividend on its own. In short, DeWitt is calling for raw upside without the implied benefits of income-sharing payments to shareholders.
On top of the Berkshire Hathaway call suggesting more than average upside for S&P 500 and Dow stocks, DeWitt believes that Team Buffett’s conglomerate comes with a significant structural advantage to produce superior earnings and to show its value over rivals.
Does size matter? Even being the sixth largest company by market cap, it may be an incredible value when compared to other conglomerates and rivals of its units. While the insurance units would boost value, DeWitt also pointed to upside from the BNSF rail operations.
Another positive mentioned in the JPMorgan report is that Berkshire Hathaway gets managers that are best in class. The company’s units also have strong brands, and the overall balance sheet is unmatched in its financial strength. Its businesses also come with scale for growth ahead, and they have low-cost competitive advantages over man rivals.
Many analysts and market watchers have to wonder how long Warren Buffett and Charlie Munger can keep leading the conglomerate. DeWitt feels that Buffett is likely to remain with Berkshire Hathaway for another decade. That is impressive for a man already well into his eighties, but Buffett has indicated that he would like to live as long as he can.
And on a post-Buffett sell-off, DeWitt feels that any such reaction would simply create a huge buying opportunity. After all, the underlying earnings would remain strong, with or without Buffett.
As far as who might replace Buffett when he can no longer run Berkshire Hathaway, Greg Abel of the utility business was named, along with another choice of Ajit Jain in reinsurance.
That’s at least ten reasons that JPMorgan believes Berkshire Hathaway is a screaming buy in the mind of the JPMorgan team.
Oddly enough, Berkshire Hathaway’s A shares were down more than $330 to $268,112 on Thursday afternoon. They have a 52-week range of $213,030 to $272,885. The B shares were down fractionally to $178.75, in a 52-week range of $141.92 to $181.97.