Berkshire Hathaway Downgraded by Keefe, Bruyette & Woods
Keefe, Bruyette & Woods has downgraded Berkshire Hathaway to an “underperform” rating. The firm cited several factors affecting the stock, including lower margins in the auto insurance sector, tariffs, declining interest rates, the reduction of clean energy tax credits, and the anticipated resignation of Warren Buffett.
Mayer Shields, an analyst from KBW, adjusted his rating from “market performer” and reduced the price target for Berkshire’s Class A shares to $700,000, down from $740,000, in a report issued on Sunday.
It’s uncommon to see “underperform” or “sell” ratings on Wall Street. On Friday, Berkshire’s stock closed at $738,500 and experienced a nearly 1% decrease during Monday trading.
Warren Buffett plans to step down as CEO in January, a role he’s held since 1965, transferring the position to vice chairman Greg Abel while remaining as chairman.
Since Buffett revealed management changes on May 3, Berkshire’s Class A shares have significantly underperformed, lagging the S&P 500 by over 28 percentage points.
According to Shields, the Geico auto insurance division is expected to see a rise in the percentage of premiums that go toward paying out accident claims after two years of decline. This could happen as the company lowers its rates and intensifies marketing efforts to reclaim market share from rivals like Progressive.
Additionally, Shields noted that BNSF Railway’s growth might be impacted due to its focus on the western United States, which is increasingly vulnerable to heightened tariffs and diminished trade with Asian markets, particularly China.
He also remarked that lower interest rates would diminish income from Berkshire’s substantial cash reserves, which stood at $344.1 billion as of June 30. Furthermore, the accelerated phaseout of renewable energy tax credits under recent legislation could limit profits for Berkshire Hathaway Energy.
Shields expressed concern about Buffett’s upcoming departure, suggesting that his “unparalleled reputation” might wane, and that inadequate disclosures could shake investor confidence.
Looking ahead, Berkshire is set to release its third-quarter results on Saturday.
