The following excerpts explain why Zacks senior insurance industry analyst Eric Rothmann recommends a Hold rating on Berkshire Hathaway, Inc. (BRK.A) shares:
'Berkshire Hathaway continues to issue results a bit ahead of expectations. However, we expect Berkshire's core revenue and earnings growth trends to experience pressure, as the insurance cycle softens and investment income growth moderates under the weight of a large low-interest earning cash position.
'Although the stock is trading at the lower end of its ten-year average price-to-book range, we see little potential for multiple expansions or price appreciation. We think book value growth will continue to stall and return on equity (ROE) will remain in the low-to-mid-single digit range.
'We have adjusted our 2007 and 2008 earnings expectations to reflect 2Q07 results (which included the effects of the Equitas reinsurance agreement). At the current price level, the shares of BRK.A trade at 1.57x the 2Q07 book value of $74,499 per share and 2.02x our estimated 2Q07 tangible book value of $57,796 per share.
'Our new six-month price target of $122,700 per share, up from $112,000 per share, incorporates a price-to-tangible book multiple of 2.00x to our estimated book value of $60,750 per share at December 31, 2007 and implies a 4.9% total return. Thus, we are increasing our six-month price target and maintaining our Hold recommendation on the shares of Berkshire Hathaway.'
Read the full analyst report on BRK.A
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