Warren Buffett Is The Biggest Risk For Berkshire Hathaway Investors
Buffett could run Berkshire for another decade, analyst says.
By Tomi Kilgore
MarketWatch
MarketWatch
September 14, 2017
Warren Buffett is the biggest risk for investors of his investment vehicle, Berkshire Hathaway Inc., but the “legendary” investor is also the company’s best asset and is showing no signs of slowing, according to analyst Sarah DeWitt at J.P. Morgan.
DeWitt initiated research coverage of Berkshire with J.P. Morgan’s highest overweight rating, and placed Street-high price targets of $210 on the Class B shares BRK.B, -0.20% and of $315,000 on the Class A shares BRK.A, -0.05% The average targets of the seven analysts surveyed by FactSet are $195.91 for the Class Bs and $293,711 for the Class As.
She described Berkshire as “a collection of best-in-class businesses” with unmatched balance sheet strength. DeWitt said earnings growth at the company’s largest businesses, including insurers Geico and Berkshire Hathaway Reinsurance and railroad operator Burlington Northern, should accelerate, as they have “meaningful structural advantages” that will allow profits to grow faster than the overall stock market over time.
The Class B shares slipped 0.1% in afternoon trade Thursday. Over the past 12 months, they have rallied 22.6%, while the SPDR S&P Insurance exchange-traded fund KIE, -0.68% has climbed 20.2%, the Dow Jones Transportation Average DJT, -0.22% has run up 22.7% S&P 500 index SPX, -0.11% has gained 17.4%
But Berkshire’s real strength is Chairman and Chief Executive Buffett. So one of the largest concerns among investors is when Buffett is no longer running the company, DeWitt said.
“Warren Buffett is 87 and has run Berkshire for 52 years, and his ability to identify attractive acquisition candidates as well as deploy huge sums of money quickly and decisively is unmatched,” DeWitt wrote in a note to clients.
That said, DeWitt said she thinks there could be a “prolonged period of selling pressure” when Buffett steps down.
The good news for investors: “Importantly, he shows no signs of slowing down and could possibly be at the helm for another decade in our view,” DeWitt wrote.
“Warren Buffett is 87 and has run Berkshire for 52 years, and his ability to identify attractive acquisition candidates as well as deploy huge sums of money quickly and decisively is unmatched,” DeWitt wrote in a note to clients.
That said, DeWitt said she thinks there could be a “prolonged period of selling pressure” when Buffett steps down.
The good news for investors: “Importantly, he shows no signs of slowing down and could possibly be at the helm for another decade in our view,” DeWitt wrote.
Regarding possible successors, there is Ajit Jain, 66, who runs Berkshire Hathaway Reinsurance. DeWitt believes Jain won’t be picked given his advanced age, since Buffett has said in the past that the next CEO should be internal and relatively young so they can run the company for at least 10 years.
Current Vice Chairman Charlie Munger is 93.
DeWitt said the most likely successor is Greg Abel, 55, who heads Berkshire’s utility business and who Buffett has often praised. “We view Greg Able as a talented manager who would be very successful at the helm of Berkshire,” DeWitt wrote.
That is why even after Buffett leaves, the expected sharp and lengthy weakness in the stock should ultimately provide a buying opportunity for investors, DeWitt said, as the underlying fundamentals of Berkshire’s business should remain strong and given the potential for the company to repurchase “substantial amounts of stock.”
Current Vice Chairman Charlie Munger is 93.
DeWitt said the most likely successor is Greg Abel, 55, who heads Berkshire’s utility business and who Buffett has often praised. “We view Greg Able as a talented manager who would be very successful at the helm of Berkshire,” DeWitt wrote.
That is why even after Buffett leaves, the expected sharp and lengthy weakness in the stock should ultimately provide a buying opportunity for investors, DeWitt said, as the underlying fundamentals of Berkshire’s business should remain strong and given the potential for the company to repurchase “substantial amounts of stock.”
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