Berkshire Hathaway doesn’t need Warren Buffett quite as much as it used to.
And this is great news, according to analysts at UBS.
In a note to clients on Monday morning, UBS initiated coverage on shares of Berkshire Hathaway with a “Buy” rating and a $244,500 per share price target.
And what UBS really likes about Berkshire is that its insurance operations and the legendary stock picks of Warren Buffett matter a lot less than they used to.
Here’s UBS (emphasis mine):
First, we believe that any Buffett premium built into BRK’s shares has declined over time as Berkshire has shifted from an insurance and investment organisation into a diversified conglomerate. Second, the structural advantages that exist today at the company will remain. Third, as a conglomerate of leading businesses, Berkshire has become much less reliant on Buffett’s stock-picking skills to generate returns than it was in earlier years. While Buffett’s superior capital allocation skills and market “clout” would be missed, as long as the culture does not change, we would expect the company to continue to outperform.
(Disclosure: I own a few Berkshire shares so I can attend the annual meeting.)
And so while Berkshire has from time to time been described as an insurance company with a hedge fund tacked on, UBS thinks this statement is less and less true, making the company a more durable profit generator going forward.
“We believe that the current uncertain economic and market environment plays into the hands of Berkshire Hathaway, with its structural advantages of permanent capital, strong cash generation and industry-leading portfolio of businesses,” UBS’ Brian Meredith and team wrote Monday.
“This enables BRK to make acquisitions and/or invest in its operating units despite challenging environments, positioning it to grow earnings and book value faster than the S&P 500.”
Recall last month when we wrote about the insurance float — which is basically the “free money” created by Berkshire’s giant insurance operations — that gives the company a steady stream of cash to do, well, almost anything with.
This, in Meredith’s view, is what gives Berkshire such a big edge right now. Because if the corporate and economic environment is uncertain, Berkshire’s huge cash pile allows it to quickly take advantage of opportunities when they crop up.
See: Berkshire buys aeroplane parts maker Precision Castparts for more than $35 billion.
Shares of Berkshire were trading around $211,000 early Monday.