Warren Buffett’s Berkshire Hathaway has experienced a strong performance this year, with shares reaching a record high and strong earnings. However, one analyst is cautioning about a potential slowdown in the stock. James Shanahan at Edward Jones downgraded Berkshire shares to a hold rating from buy and removed B shares from the firm’s “U.S. stock focus” list due to the significant price appreciation. While solid earnings are expected from Berkshire’s diverse group of operating companies, Shanahan believes that the current share price already reflects these positives. Berkshire’s class A shares have rallied over 15% this year, outperforming the financial sector.
In the second quarter, Berkshire Hathaway saw a 6.6% year-over-year increase in operating earnings, along with significant gains from its stock portfolio and Treasury holdings. The company’s cash pile also grew to nearly a record level of $147.38 billion by the end of June. Analyst James Shanahan attributes the share price appreciation to an improved earnings outlook and an increase in income from Berkshire’s large cash holdings driven by interest rates. This is not the first time Shanahan has downgraded Berkshire, as he made a similar valuation call in April 2022. However, Berkshire Hathaway has fewer analysts covering it compared to other large companies, as it provides limited information about its operating businesses and has limited accessibility for analysts.
Despite Berkshire Hathaway’s impressive performance, the analyst’s downgrade suggests a cautionary stance due to the swift price appreciation. Berkshire’s shares have outperformed its peers in the financial services industry, leading Shanahan to believe that the current share price already reflects the positive outlook. With limited access to information and management, analysts face challenges when evaluating the company’s potential future performance. Nevertheless, the company’s strong earnings, investment activity, and substantial cash holdings have contributed to its positive trajectory this year. However, investors should be mindful of the analyst’s warning and consider the potential implications of the current stock valuation.