Berkshire Hathaway B (BRK.B – Free Report) is one of the most searched stocks on Zacks.com these days. So it's worth looking at some facts that could shape the stock's performance in the short term.
Over the past month, the company's stock has returned +0.2%, compared to a +2.7% change in the Zacks S&P 500 Composite Index. During this period, the Zacks Insurance/Casualty Insurance industry, which includes Berkshire Hathaway, has declined 0.5%. The key question here is: What is the future direction of the stock price?
While media releases and rumors about significant changes in a company's business prospects typically cause its stock to “trend” and lead to immediate price movements, there are some fundamentals that ultimately govern buy-and-hold decisions. There are always facts.
Regarding revisions to performance forecasts
At Zacks, we prioritize evaluating changes in company earnings estimates rather than focusing on anything else. This is because we believe that the fair value of a stock is determined by the present value of its future income stream.
Our analysis is fundamentally based on how the sell-side analysts covering a given stock are revising their earnings estimates to account for the latest business trends. As a company's earnings expectations rise, so does the fair value of its stock. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, which causes the stock price to rise. For this reason, empirical research has shown that there is a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Berkshire Hathaway is expected to post earnings of $3.41 per share, which would represent a 7.6% decline from the year-ago period. The Zacks Consensus Estimate remained unchanged over the past 30 days.
The consensus earnings estimate for the current fiscal year of $18.50 represents a +7.7% year-over-year change. This estimate has not changed over the past 30 days.
Next year's consensus earnings estimate of $22.03 represents a +19.1% change from the earnings Berkshire Hathaway was expected to report a year ago. Over the past month, the forecast has changed by +3.3%.
The Zacks Rank, our proprietary, outside-audited stock evaluation tool, harnesses the power of earnings estimate revisions to be a more conclusive indicator of a stock's short-term price performance. . The magnitude of recent changes in consensus estimates and three other factors related to earnings expectations have resulted in Berkshire Hathaway's Zacks Rank #2 (Buy).
The chart below shows the company's consensus EPS estimate over the next 12 months over time.
12 months EPS
Expected revenue growth rate
Earnings growth is arguably the best indicator of a company's financial health, but nothing will happen if a company can't grow its revenue. After all, it's nearly impossible for a company to increase profits over a long period of time without increasing revenue. Therefore, it's important to know a company's earnings growth potential.
For Berkshire Hathaway, the consensus revenue estimate for the current quarter of $81.03 Billion represents a year-over-year change of -5.1%. The current and next fiscal year estimates of $359.6 billion and $389.82 billion represent changes of -1.3% and +8.4%, respectively.
Last reported results and surprising details
Berkshire Hathaway reported revenue of $93.38 billion in its last reported quarter, representing a +19.5% year-over-year change. EPS for the same period was $3.92, compared to $3.05 a year ago.
The reported earnings represent a surprise of +21.69% when compared to the Zacks Consensus Estimate of $76.73 billion. EPS surprise was +120.22%.
Over the last four quarters, Berkshire Hathaway has surpassed consensus EPS estimates three times. The company has surpassed consensus revenue estimates every time during this period.
evaluation
You cannot make efficient investment decisions without considering stock valuation. To predict a stock's future price performance, it is important to determine whether the current price accurately reflects the intrinsic value of the underlying business and the company's growth prospects.
The present value of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), and the past value of your company Comparing a company to its peers based on these parameters can help you see if it is overvalued, overvalued or undervalued, but how reasonable its stock is You can get a good idea of what
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation metrics and rates stocks from A to F, where A is better than B. , B is better than C, A is better than B, and B is better than C). ), can be very helpful in identifying whether a stock is overvalued, properly valued, or temporarily undervalued.
Berkshire Hathaway is rated C on this score, indicating it trades on par with its peers. Click here to see the values of some of the metrics that determined this grade.
conclusion
The facts discussed here, and much of the other information on Zacks.com, may help you decide whether the market buzz about Berkshire Hathaway is worth paying attention to. However, the company's Zacks Rank #2 suggests it has the potential to outperform the broader market in the near term.
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