In 1Q18, Berkshire Hathaway (BRK.B) is expected to post EPS (earnings per share) of $3,115, a rise of 44% on a YoY (year-over-year) basis aided by lower taxes, targeted efficiencies in BNSF, and an expected decline in claims from its insurance business. Berkshire is expected to see a 9.9% fall in its top line to $58.7 billion in 1Q18 due to subdued growth in underwriting fees and the services sector.
In 4Q17, Berkshire posted EPS of $2,029, which were affected by underwriting losses and the subdued performance of its energy subsidiary. The company benefited from lower taxes and posted net income of $66 billion in 2017, up from $27 billion in 2016.
Macros are favorable
As the US economy focuses on domestic manufacturing and witnesses lower unemployment, it’s expected to grow at a faster pace in 2018. Berkshire Hathaway’s major investments in manufacturing, BNSF, and energy are expected to see improved returns in the upcoming quarters.
The Trump administration’s major policy decisions—including lower taxes and potential trade wars—and the Federal Reserve’s rate hike decisions could benefit Berkshire’s domestic investments in the medium to long term.
In 2017, Berkshire Hathaway had ~$116.0 billion in cash, forming 24% of its market cap. The company will have to find more investment opportunities in order to generate a return, or it’ll be pressured to return capital through dividends or repurchases. Berkshire Hathaway’s CEO, Warren Buffett, recently wrote a letter to investors that referred to a big-ticket acquisition.
Berkshire Hathaway’s Insurance segment will be a key driver of its performance in 2018. Overall, the sector (IYF), which includes the likes of AIG (AIG), Prudential (PRU), and MetLife (MET), has been affected by claims arising from natural calamities.
In this series, we’ll look into Berkshire Hathaway’s 1Q18 expected divisional performance. We’ll take a look at the effects of the new tax structure and the US-China trade war on Berkshire. We’ll also take a look at the company’s acquisition opportunities, investments, repurchase possibilities, and valuations.
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