Berkshire Hathaway gets a rare downgrade after conglomerate shares hit a record high

Published Fri, Sep 29 20239:19 AM EDTUpdated Fri, Sep 29 202311:31 AM EDT

Warren Buffett 's Berkshire Hathaway has been on fire this year with shares roaring back to a record on strong earnings, and this outperformance caused one analyst to urge caution about a slowdown in the stock. James Shanahan at Edward Jones downgraded Berkshire shares to a hold rating from buy Thursday evening and removed B shares from the firm's U.S. stock focus list. His main reason for the downgrade is the swift price appreciation so far this year. "BRK shares have significantly outperformed financial services peers over the past six months, supported by a relatively strong earnings outlook," Shanahan said in a note. "We continue to expect solid earnings from BRK's diverse group of operating companies. In our view, however, the current share price reflects these positives." The Omaha-based conglomerate's class A shares have rallied more than 15% this year, reaching an all-time closing high of $563,073 last week. That compares to the S & P 500's 12% gain in 2023 and a 2% loss for the financial sector. BRK.A YTD mountain Berkshire Hathaway Berkshire's operating earnings jumped 6.6% year over year in the second quarter, while it also posted big gains from its stock portfolio and Treasury holdings. Its massive cash pile grew to $147.38 billion at the end of June, near a record. "We attribute the appreciation to an improved earnings outlook, which has been strengthened by an acceleration in investment activity and an interest-rate-driven increase in income from BRK's large cash holdings," Shanahan said. The same analyst downgraded Berkshire in April 2022 — also a valuation call. There are only seven analysts covering the conglomerate at Wall Street's major equity research firms, far fewer than other megacap companies. Berkshire is the eighth-biggest company in the S & P 500 with a $778 billion market cap. Berkshire doesn't disclose a ton about its operating businesses and it's hard for the analysts to get a hold of the management, making their job difficult. Meanwhile, trading activity in Class A shares is relatively muted given its high price tag.