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Berkshire Hathaway Rides on Strong Premiums & Financial Strength

Berkshire Hathaway Inc. BRK.B is well-placed to benefit from solid premium growth, strong net investment income and robust capital position.

What’s Driving Berkshire Hathaway?

The property & casualty (“P&C”) insurer continues to benefit from strong premiums earned from its insurance business, whichgenerate maximum return on equity. Net premiums earned moved up 2.7% in 2019. Given continued strengthin premiums earned, the company’s top line has witnessed a CAGR of 5.5% over the past five years (2014-2019). Also, the Zacks Consensus Estimate for revenues in 2020 is pegged at $277.5 billion, thereby indicating nearly 9% growth from the year-ago reported figure.

Investment income also acts as an important driver for the company’s top-line growth. Net investment income improved 21.4% in 2019. However, the current low interest rate environment in the U.S. economyis likely to keep investment yields under pressure, which would consequently weigh on its overall investment income.

Apart from strength in its insurance business, the non-insurance business lines of Berkshire Hathaway contribute a substantial portion to the top-line growth. The company’s Utilities and Energy businesses have been driven by increased revenue contributions from buyouts. The railroad business is being aided by increased unit volume and higher average revenue per car/unit. Stable economic conditions and strong consumer demand continue to generate revenues for Manufacturing, Service and Retail businesses.

Furthermore, Berkshire Hathaway flaunts a strong capital   which it returns value to shareholders in the form of share buybacks. Such strong financial flexibility reflects the company’s huge cash reserve, which enables it to explore opportunities from buyouts.

However, shares of this Zacks Rank #3 (Hold) P&C insurer have lost 9.4% in a year compared with the industry’s decline of 14.4%.

Nevertheless, we believe that the company’s strong insurance business is likely to drive its shares going forward.

Stocks to Consider

Some better-ranked stocks in the insurance space are AXIS Capital Holdings Limited AXS, First American Financial Corporation FAF, and ProAssurance Corporation PRA. While First American Financial currently sports a Zacks Rank #1 (Strong Buy), AXIS Capital and ProAssurance carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AXIS Capital, First American Financial and ProAssurance surpassed estimates in the last reported quarters by 150%, 33.33% and 23.03%, respectively.

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Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
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ProAssurance Corporation (PRA): Free Stock Analysis Report
First American Financial Corporation (FAF): Free Stock Analysis Report
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