Berkshire Hathaway Pre-Q4 Earnings Analysis: Time to Sell the Stock?

Berkshire Hathaway (BRK.B) is expected to witness a decline in its top line when it reports fourth-quarter 2024 results. However, the bottom line is expected to improve. See the Zacks Earnings Calendar to stay ahead of market-making news.The Zacks Consensus Estimate for BRK.B’s fourth-quarter revenues is pegged at $88.3 billion, indicating 5.4% decline from the year-ago reported figure.The consensus estimate for earnings is pegged at $4.43 per share. The Zacks Consensus Estimate for BRK.B’s fourth-quarter earnings witnessed no movement in the past 30 days. The estimate suggests a year-over-year increase of 13%.Image Source: Zacks Investment ResearchBRK.B’s Decent Earnings Surprise HistoryBerkshire Hathway’s earnings beat the Zacks Consensus Estimates in three of the trailing four quarters and missed in one, the average surprise being 45.28%. This is depicted in the following chart.Image Source: Zacks Investment ResearchWhat the Zacks Model Unveils for Berkshire Hathaway Our proven model does not conclusively predict an earnings beat for Berkshire this time around. This is because a stock needs to have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which increases the chances of an earnings beat. This is not the case, as you can see below.You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.Earnings ESP: BRK.B has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $4.43.Berkshire Hathaway Inc. Price and EPS Surprise Berkshire Hathaway Inc. price-eps-surprise | Berkshire Hathaway Inc. QuoteZacks Rank: BRK.B currently has a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank stocks here.Factors Likely to Shape BRK.B’s Q4 ResultsBetter pricing, solid retention, higher average premiums per auto policy, increased exposure and favorable reserve development are likely to have benefited its insurance business. Continued insurance business growth is expected to have increased float.However, high catastrophe losses are likely to have been a drag on underwriting profitability. The fourth quarter faced the wrath of Hurricane Milton. CoreLogic estimated losses from Hurricane Milton to be about $34 billion, with insured losses between $17 billion to $28 billion. Thus, the combined ratio is likely to have deteriorated.   GEICO, its private passenger automobile insurance business, is expected to have delivered an improved performance, banking on higher average premiums per auto policy as well as lower claims frequencies, coupled with improved operating efficiencies.Investment results are likely to benefit from higher yields and a larger investment asset base.Unfavorable changes in business mix and lower fuel surcharge revenues are likely to have weighed on the railroad business. However, car/unit volumes are likely to have increased. Earnings of BNSF are likely to reflect higher unit volume, improvements in employee productivity and lower other operating costs. However, higher litigation charges are likely to have been a partial offset.Improved earnings from the U.S. regulated utilities, natural gas pipeline and other energy businesses are likely to have benefited the utilities and energy business. However, lower earnings from the real estate brokerage business are expected to have dampened the upside.Manufacturing, service and retailing businesses are likely to have benefited from higher customer demand for products and services in many businesses. Share buybacks are likely to have provided an additional boost to the bottom line.BRK.B’s Price Performance & ValuationThe stock outperformed the industry, sector and S&P 500 in 2024. Image Source: Zacks Investment ResearchThe stock is trading at a price-to-book value of 1.64X, slightly higher than the industry’s 1.63X. It is attractively valued compared with other insurers like The Progressive Corporation PGR and The Allstate Corporation ALL.Image Source: Zacks Investment ResearchInvestment ThesisAmong its diverse business activities, the most important is its insurance operations. The insurance business is exposed to the vagaries of nature, which induces volatility in the company’s underwriting profitability and weighs on its combined ratio. An extremely active 2024 hurricane season with 25 named storms, including 12 hurricanes and six major hurricanes as predicted by the Colorado State University, are likely to have diluted the bottom line of this insurer. However, this company creates tremendous value for shareholders, given its dominant market presence, diverse business activities and, above all, the name Warren Buffett. What Should Investors Do Now With BRK.B Stock?A better-than-expected private passenger automobile insurance business will limit the downside arising from catastrophe losses.  Also, better performance from other businesses should offer respite. However, an unfavorable return on capital, a likely decline in the fourth-quarter top line, lowered times interest earned, and contracting margins make the stock vulnerable. The company’s exposure to catastrophes tends to make its underwriting results volatile. Notably, insurance operations contribute around one-fourth of Berkshire’s top line. Also, given its premium valuation, investors should stay away from the stock for now.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report The Allstate Corporation (ALL): Free Stock Analysis Report The Progressive Corporation (PGR): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks