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Berkshire Takes a Hit on Insurance and BNSF Performance in 1Q16

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Berkshire misses analyst estimates

Berkshire Hathaway’s (BRK-B) reported its first quarter earnings on May 6, 2016. The company missed the operating EPS (earning per share) analyst estimate of $2,609 and reported $2,275. The company also reported operating earnings of $3.7 billion, as compared to $4.2 billion in the prior year quarter. These earnings were mainly impacted by lower operating profits in the Insurance and BNSF divisions.

Berkshire Takes a Hit on Insurance and BNSF Performance in 1Q16

The stock has risen by 2% over the past month and 0.6% over the past year. By comparison, the S&P 500 (SPY) has declined by 0.5% over the past month and by 2.4% over the past year. The stock has a low beta as compared to the broader market, and it’s relatively less risky for long-term investments.

Berkshire’s holdings have been performing on the back of insurance, financials, and manufacturing. Chairman and CEO Warren Buffett is deploying cash for buying stocks at attractive valuations. Berkshire’s recent investments include Precision Castparts (PCP) and Kinder Morgan (KMI).

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A heavy hitter in investments

Berkshire Hathaway, with a market capitalization of more than $342 billion, is a holding company whose subsidiaries engage in diverse business activities across sectors. Its subsidiaries operate in several major businesses:

  • insurance and reinsurance
  • freight rail transportation
  • utilities and energy
  • finance
  • manufacturing
  • service and retail

The company’s investments are made and managed primarily by Buffett and its vice chairman Charles Munger. Buffett purchased Berkshire Hathaway in 1965. At that time, the company was part of the textile business. Since then, the company has gone through several transformations and is now engaged in the buying and managing of businesses.

Berkshire Hathaway competes with asset managers and insurance players (PFF) including American International Group (AIG), MetLife (MET), and BlackRock (BLK).

In this series, we’ll discuss Berkshire’s divisions, balance sheet strength, relative performance, and valuations. Let’s start by analyzing the company’s reinsurance business.

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