Berkshire’s Ailing Share Price Clouds Abel’s First Annual Meeting as CEO

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Some of that apprehension is also evident in Berkshire’s price-to-book ratio. The gauge has drifted lower in the past year and now stands at about 1.4, compared to almost 1.8 before last year’s annual gathering — though it has been both higher and lower throughout Berkshire’s history.

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Buffett stepping down “was somewhat of a catalyst for some people that held Berkshire stock to sell, given the valuation,” said UBS Group AG insurance analyst Brian Meredith.

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Analysts also point out that Abel — a skilled operator who turned the firm’s energy business into one of its largest profit engines — nevertheless lacks a background in asset management, a key remit for Berkshire. 

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Despite a strong operational background, Abel “has never professionally managed money,” said Cathy Seifert, an analyst for CFRA Research. 

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Charges, Disclosure and AI 

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At the same time, catalysts for stock weakness that had percolated for years are being thrown into sharper relief now that Buffett is gone. 

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Weak growth in revenue and disappointing earnings at the conglomerate’s insurance businesses have weighed on investor sentiment. Berkshire’s insurance operating underwriting earnings slumped more than 54% in the fourth quarter, while peers managed to beat expectations in the period.

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And last year, a combined $8.3 billion impairment on investments in Kraft Heinz Co. and Occidental Petroleum Corp. dented Berkshire’s reputation as a successful acquirer, according to Seifert. Operating profits overall declined 6% last year.

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The firm’s well-known lack of disclosure is another factor. Berkshire is the only public company its size to not have an investor relations function and to not organize investor days beyond its annual meeting in Omaha each May. While that may have been a forgivable quirk during the six decades that Buffett and Munger ran the company, Berkshire’s lackluster stock price suggests shareholders haven’t yet extended the same trust to Abel. 

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Then there’s the question of broader market valuations. With excitement over artificial intelligence helping drive stocks to fresh records despite tensions in the Middle East, equities are pricey on many metrics — including one favored by Buffett himself. That measure, which pits total market capitalization of US stocks against gross domestic product, currently stands at over 220%, near a record high.

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“The market may not expect Abel to execute long-term home runs like Buffett, but likely wants to see how he identifies value-oriented names, which by its nature takes time,” Bloomberg Intelligence analyst Matthew Palazola said.

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Even small steps from Abel have been encouraging for shareholders eager to hear good news. Berkshire shares climbed after the company restarted buybacks in early March, after more than a year without any shareholder payout.

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Abel has also shaken up the management team, adding a general counsel and parting with two important executives. Saturday’s meeting will also shed more light on Berkshire’s deep executive bench, with BNSF’s Katie Farmer and NetJets’s Adam Johnson expected to take questions from shareholders.

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And a short-term focus on Berkshire’s stock price is anathema to many of the firm’s true-believers, who abide by the advice of Buffett’s mentor, Benjamin Graham. A value-investing pioneer, Graham believed that a company’s share price will eventually line up with its fundamentals over time. 

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“If anybody has read Warren Buffett, the last thing anybody at Berkshire should do is pay attention to the stock prices,” said Cunningham, who authored a book titled “How to Think Like Benjamin Graham and Invest Like Warren Buffett.” 

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For now, however, investors are counting on Abel to show he can keep Berkshire’s fundamentals strong. 

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“Buffett had obviously enjoyed a tremendous amount of trust and respect,” said Meyer Shields, an analyst at Keefe, Bruyette & Woods. “I don’t think it’s in any way a criticism of Greg Abel to say that he has very, very large shoes to fill.” 

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—With assistance from Matt Turner.

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