Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) can’t get a buy recommendation from equity analysts, even as it trades in New York at the cheapest price relative to book value since March 2009.
Berkshire fell this week to its lowest since June 2010 and has underperformed the Standard & Poor’s 500 Index over the last 12 months. The company faces a sluggish U.S. economy, declining world equity markets and reinsurance claims tied to Japan’s biggest earthquake. In March, the resignation of David Sokol raised questions about succession for Buffett, the 80-year-old chief executive officer, and Vice Chairman Charles Munger, 87.
“Hopefully we’ll pull out of this, but it looks like it’ll be slow,” said Meyer Shields of Stifel Nicolaus & Co., one of four equity analysts who rates Omaha, Nebraska-based Berkshire at “hold” or an equivalent level. “And every day of slowness, Warren Buffett and Charlie Munger get another day older.” Shields raised his rating to “hold” from “sell” in February.
Berkshire investors have trusted Buffett, who’s held the top job since 1970, to boost the share price by picking stocks and making takeovers. The firm hasn’t named a successor or set a timetable for CEO transition. Jay Gelb, who has a “neutral” rating on Berkshire at Barclays Plc, said in May that Sokol’s exit means “succession risk is elevated.” Sokol, former chairman of Berkshire’s MidAmerican Energy Holdings, was seen as a possible successor to Buffett before he resigned.
Berkshire, which may report second-quarter results tomorrow, fell 7.3 percent on the New York Stock Exchange in the last year through yesterday, compared with a 12 percent gain in the S&P 500. The Class A shares dropped 13 percent since the March 11 quake in Japan. The S&P 500’s slide in the same period was 3.4 percent.
“It’s the cheapest that I’ve seen it in a while,” said Tom Lewandowski, an analyst with Edward Jones & Co., who has a “hold” rating on Berkshire shares. “It’s hard for me to get really positive on that.”
Berkshire trades at about 1.14 times book value, a measure of assets minus liabilities. That compares with a ratio of 1.04 on March 9, 2009, a day when the S&P 500 fell to its lowest level since September 1996.
Berkshire, which has a market value of about $180 billion, has attracted less attention from brokerages and research firms because its trading volume tends to lag behind that of companies of similar size. Bank of America Corp. (BAC), the biggest U.S. bank, has “buy” recommendations from 20 analysts and “hold” calls from 18. No analyst tracked by Bloomberg advised selling Berkshire or Charlotte, North Carolina-based Bank of America.
“This is a business that should have a succession plan,” Charles Ortel, managing director of Newport Value Partners, said of Berkshire. “The market deserves to see what that plan may be.” Ortel doesn’t advise buying the shares. Berkshire said in a February filing that it had identified four candidates to succeed Buffett, without naming them.
The last analyst tracked by Bloomberg to recommend buying Berkshire was Christopher Neczypor of Goldman Sachs Group Inc. (GS), who suspended his coverage in October. Berkshire owns warrants to buy $5 billion of shares of New York-based Goldman Sachs. Clifford Gallant, an analyst with KBW Inc., downgraded Berkshire to “market perform” from “outperform” in March 2010.
“Berkshire stock went to a price we never thought,” Munger said at a forum in Pasadena, California, on July 1. The earthquake which struck North of Tokyo cost Berkshire $1.1 billion in the first quarter and was cited by Munger as a cause for the stock decline.
Buffett didn’t respond to a request for an interview e- mailed to his assistant, Carrie Kizer.
Berkshire’s slide has coincided with disappointing data on the U.S. economic recovery and stagnation in major stock indexes from Tokyo to the London. In the last decade, Buffett has used acquisitions and derivatives to bet on the health of the U.S. economy and long-term growth in stocks on three continents.
The U.S. gross domestic product expanded less than expected in the second quarter, while consumer spending fell in June and manufacturing declined last month. Berkshire’s equity-index derivatives, tied to the S&P 500, Japan’s Nikkei 225 Stock Average, the Eurostoxx 50 Index, the U.K.’s FTSE 100, were recorded as a $6.5 billion liability as of March 31. The liability was $7.1 billion a year earlier.
Berkshire doesn’t hold the quarterly earnings conference calls scheduled by most of the largest publicly traded firms to update Wall Street analysts. Buffett has said his goal is to attract long-term investors and not to maximize the price at which Berkshire’s shares trade.
“We don’t understand the CEO who wants lots of stock activity,” Buffett said in the letter accompanying Berkshire’s 1988 annual report. “For that can be achieved only if many of his owners are constantly exiting. At what other organization - school, club, church, etc. - do leaders cheer when members leave?”
Buffett said on Jan. 20, 2010, that Berkshire was “undervalued” in the market. That day, Class A shares traded between $100,000 and $105,001. The stock closed yesterday at $110,957.
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