Two longtime analysts of Berkshire Hathaway Inc appear deeply divided over prospects for the company led since 1965 by billionaire Warren Buffett, in reports issued on Monday ahead of this weekend’s shareholder extravaganza.
Jay Gelb of Barclays Capital, who rates Berkshire “overweight,” said the company appeared well-positioned to benefit from economic expansion, share buybacks and major acquisitions despite problems at Kraft Heinz Co, where it has a 26.7-per-cent stake.
In contrast, Meyer Shields of Keefe, Bruyette & Woods, who rates Berkshire “market perform,” said the company’s sprawl makes it difficult to generate outsized returns, especially after Buffett, 88, is no longer chief executive officer.
Berkshire owns more that 90 companies such as the Geico auto insurer, BNSF railroad, several industrial parts and equipment companies, and See’s candies and Dairy Queen ice cream.
It also owns big stakes in Apple Inc, financial services companies including Bank of America Corp and Wells Fargo & Co, and the four largest U.S. airlines.
Tens of thousands of people will be in Omaha, Nebraska this weekend for Berkshire’s annual shareholder weekend, including the May 4 annual meeting.
This, despite that many shareholders have not recently fared as well at Berkshire as they might have elsewhere.
The company’s stock price has lagged the Standard & Poor’s 500 since 2009. And in 2019, it had risen 4.9 percent through Friday while the S&P was up 17.3 per cent.
Barclay’s Gelb said CEO succession has been an overhang though the quality of Berkshire’s management is “among the best,” with Vice Chairmen Greg Abel, 56, and Ajit Jain, 67, among the top candidates.
He also said Kraft Heinz has “become a weakness” for Berkshire, which in February took a $3 billion writedown because the packaged food company has failed to keep up as consumers shifted to healthier and private-label products, but other investments could help overcome the drag.
Shields of Keefe, Bruyette & Woods was less forgiving.
He said Kraft Heinz may signal that transformative dealmaking may “not be Berkshire’s strong suit,” and “internet-era information democratization” may make it harder for Buffett to assess brand loyalty and pricing power.
Shields also said Berkshire investors may have become too reliant on Buffett’s public persona and past investment successes, rather than looking at the Berkshire of today.
Berkshire did not immediately respond to a request for comment. Its Class A shares were up $4,542 at $325,542 in early afternoon trading. Gelb’s price target is $375,000, and Shields’ is $338,160.