Almost none of the Berkshire Hathaway analysts recommend buying the conglomerate’s stock

Published Sat, Apr 23 20226:59 AM EDT

Berkshire Hathaway is firing on all cylinders and Warren Buffett is back in the deal-making game, but there's barely any analyst on Wall Street recommending buying the conglomerate's stock. Here is why. There are only seven analysts covering the Omaha-based conglomerate at Wall Street's major equity research firms — six of them have a hold-equivalent rating and only one has a buy rating, according to CNBC Research. The primary reason for the lack of Berkshire bulls on Wall Street is the conglomerate's stellar performance this year, leading many to believe the good news has been priced in to the stock. Class A shares have rallied about 13% this year, compared with the S & P 500's 4.5% loss. "Largely it was a valuation call. It has so significantly outperformed," said James Shanahan, an analyst at Edward Jones who covers Berkshire and downgraded the stock two weeks ago. "The stock has done really well partly due to the perception that Berkshire is more or less a safe haven," Shanahan said. "It's a company that has 85% of its revenue from the U.S., so it's largely insulated even if you were to project the potential for an European recession." The second driver for the negative outlook is a likely slowdown in stock repurchases since Buffett has started making deals and buying stocks. The conglomerate bought back a record $27 billion worth of its own shares last year, and the stock was up nearly 30% during the period. "What I view as a potential risk here is a significant slowdown in buyback activity. There was evidence that that was already starting to happen," Shanahan said. Berkshire used $6.9 billion to buy back shares in the fourth quarter, slower than the $7.6 billion repurchased in the third quarter. Keefe Bruyette & Woods lowered its estimate for share repurchases in 2022 to $31.5 billion from $38.5 billion, "reflecting a presumed preference for acquisitions over repurchases in light of BRK's shares' strong year-to-date performance." The sole buy rating comes from UBS' Brian Meredith, who viewed Berkshire's deal to acquire insurer Alleghany for $11.6 billion as a positive. "We view the transaction as a positive for Berkshire as it is a good use of excess cash, accretive to earnings, around $14bb of insurance 'float' for the company," Meredith said in a recent note. Why so few analysts? It might appear odd to many that there are only seven analysts covering Berkshire, the sixth biggest company in the S & P 500 by market cap. In comparison, Tesla and Apple both have more than 40 analysts covering their stock, according to FactSet. It's mainly because Buffett's conglomerate rarely engages in investment banking. Whenever it makes an acquisition, it's often largely without any support from a banker, so there's the lack of investment banking opportunity for the sell side. Meanwhile, Berkshire doesn't disclose much about its operating businesses and it's hard for the analysts to get a hold of the management, i.e. Buffett. As a factor, Keefe Bruyette & Woods cited "the elevated risk stemming from BRK's inadequate and frequently deteriorating disclosures" that preclude a full understanding of its operations. — CNBC's Michael Bloom contributed reporting.

Warren Buffett at Berkshire Hathaway's annual meeting in Los Angeles, California. May 1, 2021.

Gerard Miller