Buffett's buying spree may continue — Here's what Wall Street analysts say about the Alleghany deal

Published Mon, Mar 21 20223:47 PM EDT

Warren Buffett has been making big moves lately including inking his biggest deal since 2016, and Wall Street analysts believe the "Oracle of Omaha's" buying spree has just begun. Berkshire Hathaway on Monday announced its plan to acquire insurer Alleghany for $11.6 billion, or $848.02 per share, in cash. The move followed the conglomerate's $7.3 billion investment in Occidental Petroleum shares in recent weeks. Analysts covering Berkshire unanimously agree that the Alleghany deal makes a great deployment of the conglomerate's massive cash pile of more than $140 billion. Meanwhile, some expect more activities from the legendary investor in the foreseeable future. "We are optimistic that activity could continue, as there are at least two opportunities for BRK to deploy as much as $10 billion in cash in the next year," James Shanahan, Berkshire analyst at Edward Jones, said in a note. Shanahan believes that Berkshire would be interested in buying the remaining 8.9% interest in Berkshire Hathaway Energy, and the conglomerate could increase its stake in Pilot Flying J next year. Brian Meredith of UBS said the Alleghany deal doesn't mean Berkshire will slow down its aggressive buyback program. Berkshire repurchased a record $27 billion worth of its own shares last year. Here's what major Berkshire analysts said about Buffett's latest move: James Shanahan, Berkshire analyst at Edward Jones We view this transaction as highly complementary and a good use of BRK's significant excess cash....We are optimistic that activity could continue, as there are at least two opportunities for BRK to deploy as much as $10 billion in cash in the next year. First, we believe that BRK would be interested in acquiring the remaining 8.9% interest in Berkshire Hathaway Energy(BHE). The bulk of this position(7.9%) was owned by former BRK director Walter Scott, who passed away in 2021. Second, in early 2023, BRK expects to acquire another large stake in the Pilot/Flying J Travel Centers, increasing BRK's ownership to 80% from less than 39% currently. As with Alleghany, these investments would also add to earnings. Cathy Seifert, a Berkshire analyst at CFRA Research. The deal makes sense for both firms, in our view, since Y's insurance-based conglomerate model is similar to Berkshire's and both firms have a long history of business interactions. For Berkshire, the transaction increases its presence in the specialty insurance and reinsurance segments at a time when market conditions remain attractive for growth. We don't think there will be much regulatory push back on this deal, though we think this transaction could spark additional consolidation and we maintain our Buy recommendations on shares of ACGL and RE. Brian Meredith of UBS Berkshire has significant excess cash on it balance sheet ($144bb of cash and short-term investments as of 4Q21) which it has primarily been using for share repurchases. We view this transaction as a good use of excess cash and do not believe it will slow BRK's share repurchase activity ($26.9bb for FY2021). We also view the purchase price as attractive for BRK. While other reinsurers are trading at around 1.1x book value, specialty commercial insurers trade at more than 2.0x book value. Meyer Shields, Berkshire analyst at Keefe, Bruyette & Woods We think the companies' strategies and operating cultures are very compatible; Alleghany CEO Joe Brandon was CEO of Berkshire subsidiary General Re from 2001 through 2008. 2. In addition to the long-awaited deployment of some of Berkshire's nearly-$150 billion of year-end 2021 cash and short-term securities into mostly-familiar businesses, we see Alleghany's exposure to brokered reinsurance (through TransRe) and small-account specialty business (through CapSpecialty) as particularly attractive to Berkshire. Michael Phillips of Morgan Stanley We view this as a positive for BRK. We believe the strong reinsurance segment from Y will help diversify BRK's reinsurance distribution, as BHRG's premiums are lumpy given it strikes many one-off reinsurance deals (AIG 2018, HIG 2017, IAG 2015)...We also think the deal marks an endorsement for Mr Buffett's view of the current reinsurance market. — CNBC's Michael Bloom contributed reporting.

Berkshire Hathaway Chairman Warren Buffett Interview

Credit: Daniel Acker/Bloomberg via Getty Images

Warren Buffett has been making big moves lately including inking his biggest deal since 2016, and Wall Street analysts believe the "Oracle of Omaha's" buying spree has just begun.