Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) released its Q1 financials. It delivered net earnings of $12.7 billion in the first quarter of 2024, reflecting a significant dip from $35.5 billion in the prior-year quarter.
Before digging deeper, it’s important to understand that Berkshire engages in diverse business activities and owns an extensive equity investment portfolio. Fluctuations in the market prices of these investments can lead to significant realized and unrealized gains or losses, leading to volatility in the company’s earnings.
Earnings Dip Doesn’t Matter
It’s worth noting that, due to the volatility in the stock market, Berkshire reported investment gains of $1.48 billion in Q1 of 2024. In comparison, it reported investment gains of $27.3 billion in the prior-year quarter, significantly boosting its earnings.
Given this significant year-over-year fluctuation in investment gains, Berkshire reported EPS of $5.88 in Q1 compared to $16.25 in the prior-year quarter.
Thus, using the firm’s operating income to evaluate performance rather than net earnings is important. In its latest SEC filing, Berkshire emphasized that gains or losses from investments driven by changes in market prices of equity securities may not accurately reflect the company’s economic performance.
Therefore, it’s essential to look beyond these fluctuations when assessing Berkshire’s financial health.
Q1 Operating Results
Berkshire delivered operating income of $11.22 billion in Q1, up 39.1% year-over-year. Higher insurance underwriting and investment income supported its operating earnings. This growth was driven by a surge in insurance underwriting and investment income, bolstering the firm’s overall earnings.
Specifically, insurance underwriting earnings skyrocketed by approximately 185.2% year-on-year to about $2.60 billion from $911 million. Geico’s, an American auto insurance company owned by Berkshire Hathaway, earnings jumped 174% to $1.93 billion. Moreover, insurance investment income saw a notable uptick of 32%.
Berkshire’s railroad business reported $1.14 billion in earnings, down 8.3% year-over-year. At the same time, energy businesses’ earnings increased 72.4% to $717 million. The company’s cash position remained high, reaching a record of $188.99 billion, up from $167.6 billion in the Q4 quarter.
Is Berkshire Stock a Buy or Sell?
Berkshire stock has one Buy and one Hold recommendation. KBW analyst Meyer Shields raised the price target on Berkshire Hathaway Class A stock to $666,000 from $645,000 after the earnings report.
The analyst expects the stock to benefit from higher operating earnings and share buybacks. However, Shields maintained a Hold rating on BRK.A stock.
Analysts’ average price target on BRK.A stock is $683,617, implying 13.37% upside potential from current levels.
