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Berkshire Hathaway Scores Rare Analyst Upgrade

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It is not all that common that shares of Berkshire Hathaway Inc. (NYSE: BRK-A) see big analyst calls. After all, the post-financial conglomerate has so many moving parts and has such a large public equity investment portfolio that some analysts feel like Warren Buffett and Berkshire Hathaway are just about directly on par with the economy and the S&P 500. But some analysts do actually cover Berkshire Hathaway.

UBS reiterated its Buy rating on Berkshire Hathaway’s A-shares, but it raised its price target to $319,000 from $291,000. What matters here is that this new target is much closer to the $328,500 “upside scenario” that the company had previously set. UBS has had a Buy rating on Berkshire Hathaway since March of 2016, and its first price target for the A-shares was $244,500, and that target had been raised four times prior to this current hike.

Even back in August, UBS’s Brian Meredith already had lowered his estimates on Berkshire Hathaway for 2017 and 2018. He noted the miss and continued margin pressure at GEICO but noted stronger results for the BNSF rail operations.

24/7 Wall St. wanted to outline some other fresh and recent analyst calls regarding Team Buffett and Berkshire Hathaway to see how the UBS rating stacks up.

First and foremost, Thomson Reuters only counts five analysts with formal ratings on Berkshire’s A-shares — with a consensus target price of $296,500 that is based on two Hold and three Buy equivalent ratings. The B-share ratings — Berkshire Hathaway Inc. (NYSE: BRK-B) — have the same cluster of analysts but there is also one “strong buy” added into the mix, and the Thomson Reuters consensus target is $202.25 for the B-shares (versus $187.48 today).

In a rival call from October 5, Barclays lowered its third-quarter earnings outlook on Berkshire Hathaway due to anticipated catastrophic losses from hurricanes and from foreign exchange losses. Still, Barclays believes that Berkshire Hathaway’s book value per share will have risen 2.2% in the third quarter to $186,832 per share — now to about 1.5 times book value and an expected sustainable book value growth of about 10% per year.

Also worth noting from recent analyst calls was that JPMorgan came out in mid-September and started Berkshire Hathaway with an Overweight rating. The Berkshire Hathaway B-shares were assigned a $138 price target. This was calling it best-in-class businesses and with the parent having an unmatched balance sheet. 24/7 Wall St. outlined the 10 reasons Berkshire was a screaming buy at that time.

The JPMorgan report talked up earnings acceleration pending future acquisitions and noted that its valuation is attractive at 1.5 times book value (only slightly above the historical median of 1.4). And it noted that the 87-year-old Buffett could still be at the helm of the company for another decade.

One other recent report covered the credit ratings rather than the equity ratings, but S&P Global Ratings revised its outlook on some of Berkshire Hathaway’s insurance entities down to “negative” from “stable” based on uncertainties over how much capital it would need to offset higher risks. Its large retroactive reinsurance deal with AIG, which was done earlier this year, increased Berkshire Hathaway’s ultimate risk exposure and the premiums paid by AIG to Berkshire have reportedly not been invested yet.

Another call was made on Berkshire Hathaway back in July ahead of the last earnings report. Morgan Stanley started coverage with an Equal Weight rating and gave the B-shares a target of $181 (versus a $171.85 price at that time).

Berkshire Hathaway’s A-shares were last seen trading up just $76 at $281,165 on Tuesday morning, and the current 52-week high and all-time high is $282,000.

Berkshire Hathaway now has a market cap of roughly $462 billion. It is important to keep in mind that one issue that helps make up that massive valuation is the company’s massive $162 billion equity portfolio, and then a portfolio full of bonds and convertible notes that can convert to stock. If you eliminate the double-counting of the Alphabet (GOOGL/GOOG) shares, that makes Berkshire Hathaway just the sixth largest company behind the $268 billion for Amazon and the $492 billion for Facebook.

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