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(Bloomberg) — Berkshire Hathaway Inc. got a rare sell rating, with analysts cautious on its earnings outlook and ongoing concerns over Warren Buffett’s upcoming departure and macro risks.
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Keefe, Bruyette & Woods cut the recommendation on the conglomerate’s Class A shares to underperform from market perform, saying “many things moving in the wrong direction.” Among six analysts tracked by Bloomberg that cover the firm it is the only sell rating.
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“Beyond our ongoing concerns surrounding macro uncertainty and Berkshire’s historically unique succession risk — think the shares will underperform as earnings challenges emerge and/or persist,” analyst Meyer Shields wrote in a Sunday note.
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Earlier this year, the company named Vice Chairman Greg Abel to replace Buffett as chief executive officer. The billionaire, who recommended Abel for the job, will hand over the keys to the $1.2 trillion behemoth that Buffett built into one of the world’s most valuable companies on Jan. 1. Berkshire commands a portfolio of stocks such as Apple Inc. and American Express Co. on top of a collection of insurance, energy, railroad and consumer businesses.
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Berkshire’s Class B shares trade about 1% lower on Monday. So far this year, the stock is up only 7.8%, compared to the S&P 500 Index’s 16% gain.
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The succession might further weigh on the stock as “what we see as unfortunately inadequate disclosure that will probably deter investors once they can no longer rely on Mr. Buffett’s presence at Berkshire Hathaway,” Shields wrote.
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He sees shares continuing to underperform as earnings challenges in several business units, including GEICO, Berkshire Hathaway Reinsurance Group, investment income, Berkshire Hathaway Energy, and Burlington Northern Santa Fe carry on or crop up.
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“Believe GEICO’s likely underwriting margin peak, declining property catastrophe reinsurance rates, lower short-term interest rates, tariff-related pressure on the rails,” they wrote, adding that “the risk of fading alternative energy tax credits will drive underperformance over the next 12 months.”
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