Berkshire
Hathaway
(BRK.A/BRK.B) released
its
first-quarter
earnings
report
on
May
4.
Here’s
Morningstar’s
take
on
Berkshire
Hathaway’s
earnings
and
outlook
for
its
stock,
as
well
as
the
key
points
from
the
annual
meeting,
which
was
held
on
the
same
day.
While
wide-moat
Berkshire
Hathaway’s
annual
meeting
has
always
been
entertaining,
it
generally
has
not
been
a
huge
source
of
insight
into
the
firm’s
operations.
While
this
year’s
event
had
the
feel
of
past
meetings
–
the
setting
was
the
same,
the
throngs
of
shareholders
were
present,
and
the
company’s
top
managers
were
onstage
taking
questions
from
CNBC’s
Becky
Quick
and
shareholders
during
the
live
event
in
Omaha
–
the
absence
of
Charlie
Munger
(who
passed
away
in
November
2023)
hung
over
the
meeting,
with
his
quick
wit
and
biting
comments
sorely
missed
by
all
in
attendance.
With
CEO
Warren
Buffett
joined
by
Ajit
Jain
and
Greg
Abel
onstage,
this
year’s
questions
were
driven
more
toward
eliciting
information
about
the
inner
workings
and
performance
of
Berkshire’s
operating
companies,
stock
investments,
ongoing
capital
allocation,
and
succession
planning.
These
were
interspersed
with
plenty
of
questions
about
the
economy,
as
well
as
the
usual
requests
for
advice
from
Buffett
about
one
thing
or
another
in
the
questioner’s
life
or
business.
If
we
had
to
sum
up
our
main
takeaways
from
this
year’s
meeting,
from
an
analyst’s
perspective,
we
would
highlight
the
following:
the
meeting
provided
more
insight
into
Geico
and
BNSF,
both
of
which
have
had
their
troubles
the
past
five
years
or
so;
climate
change
and,
more
specifically,
wildfires
(including
the
increased
exposure
to
litigation)
are
a
bigger
issue
now
for
Berkshire
Hathaway
Energy;
the
insurer
remains
a
net
seller
of
stocks,
despite
putting
a
fair
amount
of
capital
into
a
yet-to-be-disclosed
financial
services
stock,
with
sales
of
Apple
and
Paramount
highlighted
during
the
meeting.
Buffett
also
discusses
succession
planning,
pays
tribute
to
Munger,
and
opines
on
future
capital
allocation
oversight;
and
Berkshire
increased
its
share-buying
activity
in
the
first
quarter
(and
early
part
of
April)
while
there
were
distant
rumblings
about
a
dividend.
Key
Morningstar
Metrics
for
Berkshire
Hathaway
•
Fair
Value
Estimate BRK.A:
$640,000.00
• Fair
Value
Estimate BRK.B:
$427.00
• Morningstar
Rating:
4
stars
• Morningstar
Economic
Moat
Rating:
Wide
• Morningstar
Uncertainty
Rating:
Low
Fair
Value
Estimate
for
Berkshire
Hathaway
Stock
With
its
4-star
rating,
we
believe
Berkshire
Hathaway’s
stock
is
undervalued
compared
with
our
long-term
fair
value
estimate
of
$427
per
Class
B
share,
which
is
equivalent
to
1.45
times
our
estimate
of
the
firm’s
book
value
per
share
at
the
end
of
2024
and
1.35
times
for
2025.
For
some
perspective,
during
the
past
five
(10)
years,
the
shares
have
traded
at
an
average
of
1.43
(1.44)
times
the
trailing
year-end
book
value
per
share.
We
use
a
9%
cost
of
equity
in
our
valuation
and
assume
Berkshire
pays
at
the
very
least
the
required
15%
corporate
alternative
minimum
tax
on
adjusted
financial
statement
income.
Berkshire
Hathaway’s
Economic
Moat
Rating
We’ve
historically
believed
that
Berkshire’s
economic
moat
is
more
than
the
sum
of
its
parts,
although
the
parts
are
fairly
moaty
on
their
own.
The
insurance
operations
–
Geico,
Berkshire
Hathaway
Reinsurance
Group,
and
Berkshire
Hathaway
Primary
Group
–
remain
important
contributors
to
the
overall
business.
Not
only
are
they
expected
to
account
for
around
32%
of
the
firm’s
pretax
earnings
(and
50%
of
our
valuation
of
it),
but
they
are
overcapitalised,
maintaining
a
larger-than-normal
equity
investment
portfolio
for
a
property
and
casualty
insurer.
They
also
generate
low-cost
float
(temporary
cash
holdings
arising
from
premiums
collected
in
advance
of
future
claims).
This
lets
Berkshire
generate
returns
on
these
funds
with
assets
commensurate
with
the
duration
of
the
business
being
underwritten.
And
they
tend
to
come
at
little
to
no
cost
to
Berkshire,
given
the
company’s
proclivity
for
generating
underwriting
gains
over
the
past
several
decades.
That
said,
we
don’t
believe
the
insurance
industry
is
conducive
to
developing
maintainable
competitive
advantages.
While
there
are
some
high-quality
firms,
with
Berkshire
having
some
of
the
best
operators
in
the
segments
where
it
competes,
insurers
essentially
sell
a
commodity,
and
excess
returns
are
difficult
to
achieve
consistently.
Insurance
buyers
are
not
inclined
to
pay
a
premium
for
brands,
and
the
products
are
easily
replicable.
Given
the
growth
of
its
auto
insurance
operations
over
the
years,
Geico
has
become
one
of
Berkshire’s
largest
generators
of
earned
premiums.
The
strength
of
the
auto
insurer’s
direct-selling
operations
has
made
it
one
of
the
largest
US
private
passenger
auto
insurance
underwriters,
responsible
for
12.3%
of
written
premiums
last
year,
compared
with
industry
leader
State
Farm’s
18.3%.
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