Insights

• Berkshire Hathaway maintains a strong financial position characterized by high liquidity, conservative solvency, and above-average profitability, but its net income is volatile due to non-recurring items.
• The company's increasing reliance on short-term debt and negative free cash flow margin are potential areas of concern that warrant close monitoring.
• Berkshire Hathaway's diverse business operations and focus on organic growth provide a stable foundation for future revenue growth and profitability.

Analysis

• Revenue - Sales/revenue has shown a moderate upward trend, indicating steady growth, but the YoY growth is decelerating compared to the 5-year CAGR. - The gross profit margin is strong and increasing, driven by decreasing COGS.
  • Profitability
    • Profitability metrics such as ROA, ROE, and ROIC are strong and above industry averages, indicating efficient utilization of assets and equity.
    • Net profit margin is strong but volatile due to non-recurring items.
  • Liquidity
    • The company maintains a strong liquidity position, as evidenced by the high level of cash and short-term investments and a current ratio significantly above the industry average.
    • The quick ratio also indicates a strong ability to meet short-term obligations.
  • Solvency
    • The company has a conservative capital structure, with a total debt to total equity ratio well below the industry average, indicating strong long-term solvency and financial stability.
    • The debt/EBITDA ratio is also low, indicating a strong ability to service debt.
  • Operational Efficiency
    • The company appears to be efficiently managing its assets, as evidenced by the stable levels of accounts receivable and inventories.
    • The increasing capital expenditures suggest a focus on organic growth and infrastructure improvements.
  • Cash Flow Analysis - Operating cash flow has been inconsistent, influenced by fluctuations in net income and working capital. - The free cash flow margin is negative, indicating that the company is not generating enough cash from operations to cover its capital expenditures.
  • Risk Factors
    • The significant increase in short-term debt warrants monitoring, as it could indicate potential liquidity pressures or a shift in financing strategy.
    • Net income has been volatile, influenced by factors such as investment gains/losses, unusual expenses, and changes in the tax rate.
  • Future Outlook
    • The company is expected to continue generating steady revenue growth, driven by its diverse business operations.
    • Profitability margins are expected to remain strong, but may be subject to volatility due to non-recurring items.
    • The company is likely to maintain a strong liquidity position in the future, given its focus on cash management and conservative capital structure.

Benchmarks (as of 2025-03-04)

• Performance Comparison:

  • Berkshire Hathaway, Inc. (BRK/B) has shown mixed performance compared to the Financial Select Sector SPDR Fund (XLF). Year-to-date, BRK/B has outperformed XLF by 6.37%. However, over a 1-year period, BRK/B has underperformed XLF by -1.76%. Over longer periods (2 and 3 years), BRK/B has outperformed XLF by 13.0% and 6.6%, respectively. This suggests that while BRK/B has recently performed well, XLF has provided better returns over the past year.

• Risk and Return Analysis:

  • The annualized returns show that BRK/B has a slightly lower 1-year return (23.74%) compared to XLF (25.5%). However, over 2 and 3 years, BRK/B has provided higher annualized returns.
  • The annualized volatility data indicates that BRK/B has generally been less volatile than XLF. For example, in Q1 2022, BRK/B's volatility ranged from 18.79% to 21.06%, while XLF's ranged from 26.01% to 29.86%. This trend continues throughout the analyzed period.
  • The maximum drawdown for BRK/B was -26.58% on 2022-10-12, while for XLF it was -25.81% on the same date. This indicates that BRK/B experienced a slightly larger peak-to-trough decline than XLF during that period, though the difference is minimal.

• Risk-Adjusted Performance:

  • The Sharpe Ratio analysis reveals that BRK/B generally has higher Sharpe Ratios compared to XLF, indicating better risk-adjusted returns. In recent quarters (Q4 2024 and Q1 2025), both BRK/B and XLF have shown relatively stable and positive Sharpe Ratios.
  • The Beta value for BRK/B has consistently been below 1, indicating that it is less sensitive to market movements compared to XLF, which has a Beta value closer to 1. As of Q1 2025, the beta for BRK/B is around 0.49, while the beta for XLF is around 0.72.

• Overall Assessment:

  • Berkshire Hathaway, Inc. (BRK/B) presents a lower-risk profile compared to the Financial Select Sector SPDR Fund (XLF), as evidenced by its lower volatility and Beta values. While XLF has shown better performance over the past year, BRK/B has outperformed over longer periods (2 and 3 years) and generally offers better risk-adjusted returns, as indicated by its higher Sharpe Ratio. The recent trends suggest that both BRK/B and XLF are experiencing a period of relative stability.

Peers Price History(as of 2025-03-04)

• Performance Comparison:
  • Berkshire Hathaway has generally underperformed Progressive Corp. over the past three years. For example, over the last 3 years, Berkshire Hathaway returned 53.65% while Progressive Corp. returned 174.2%. The Allstate Corp. has also outperformed Berkshire Hathaway, but to a lesser extent, returning 70.59% over the last 3 years. The trend continues when looking at the 1-year, 2-year, and 3-year annualized returns.
• Risk and Return Analysis:
  • Berkshire Hathaway has provided lower annualized returns compared to Progressive Corp. and The Allstate Corp. For example, the 3-year annualized return for Berkshire Hathaway is 15.39%, while Progressive Corp. is 39.97% and The Allstate Corp. is 19.49%.
  • Berkshire Hathaway has exhibited lower annualized volatility compared to Progressive Corp. and The Allstate Corp. This suggests that Berkshire Hathaway is a more stable investment.
  • Berkshire Hathaway's maximum drawdown was -26.58% on 2022-10-12, which is comparable to The Allstate Corp.'s maximum drawdown of -27.35% on 2023-07-14, but higher than Progressive Corp.'s maximum drawdown of -22.91% on 2023-07-13. This indicates a moderate risk profile.
• Risk-Adjusted Performance:
  • The Sharpe Ratio for Berkshire Hathaway is generally lower than that of Progressive Corp., indicating that Progressive Corp. offers a better risk-adjusted return.
  • The Beta value of Berkshire Hathaway is consistently below 1, indicating that it is less sensitive to market movements compared to the overall market.
• Overall Assessment:
  • Berkshire Hathaway has shown lower returns but also lower volatility compared to its peers, Progressive Corp. and The Allstate Corp. Progressive Corp. has demonstrated higher returns and Sharpe Ratios, suggesting better risk-adjusted performance. The Allstate Corp. has shown higher volatility and lower Sharpe Ratios, indicating a riskier investment.
  • A significant trend is the consistent underperformance of Berkshire Hathaway relative to Progressive Corp. in terms of returns, despite Berkshire Hathaway's lower volatility. This suggests that investors seeking higher growth may find Progressive Corp. more attractive, while risk-averse investors may prefer Berkshire Hathaway's stability.

Peers Fundamentals(as of 2024-12-31)

1. Market Position and Size:

   • Berkshire Hathaway (BRK/B) stands as a financial behemoth, boasting a market capitalization of $1,069,740 million, dwarfing its peers Progressive Corp. ($165,896 million) and The Allstate Corp. ($52,748.1 million).
   • This substantial market cap is underpinned by impressive financial metrics, including revenue of $371,433 million, EBITDA of $70,786 million, and net income of $88,995 million, all significantly exceeding those of its competitors.
   • BRK/B's sheer size and diversified operations across insurance, utilities, transportation, and manufacturing solidify its dominant market position within the financial sector.

2. Profitability and Efficiency:

   • BRK/B demonstrates robust profitability, with a gross profit margin of 23.31%, surpassing the industry average of 19.64%.
   • Its EBITDA margin of 19.06% and net profit margin of 23.96% further highlight its superior earnings power compared to Progressive Corp. (11.26% net profit margin), The Allstate Corp. (7.28% net profit margin), and the industry average (7.78% net profit margin).
   • While BRK/B's return on average assets (8.0%), return on average total equity (14.7%), and return on average total capital (14.03%) are strong, they are outperformed by Progressive Corp., indicating potential areas for efficiency improvement.

3. Financial Health and Stability:

   • BRK/B exhibits exceptional financial health, characterized by a current ratio of 5.94, significantly exceeding its peers and the industry average (1.51), indicating strong liquidity.
   • Its conservative debt position, with a total debt to total equity ratio of 22.1, is lower than Progressive Corp. (27.7), The Allstate Corp. (38.8), and the industry average (42.28), reflecting a lower risk profile.
   • BRK/B's debt/EBITDA ratio of 1.94 is also below the industry average of 2.03, further reinforcing its financial stability.

4. Valuation and Market Perception:

   • BRK/B's price-to-earnings ratio of 12.02 is lower than Progressive Corp. (19.67) and the industry average (16.29), suggesting potential undervaluation by the market.
   • Its price-to-book ratio of 1.65 is also lower than its peers and the industry average (1.92), further supporting the undervaluation argument.
   • However, BRK/B's price-to-sales ratio of 2.88 is higher than its peers and the industry average (1.61), indicating a premium valuation based on revenue.
   • BRK/B's price to free cash flow is 92.09, significantly greater than its peers and the industry average, suggesting potential overvaluation relative to its cash flow generation.

5. Cash Flow and Capital Management:

   • BRK/B demonstrates strong cash flow generation, with net operating cash flow of $30,592 million, surpassing its peers.
   • However, its free cash flow of $11,616 million is lower than Progressive Corp. ($14,834 million) due to higher capital expenditures ($18,976 million).
   • BRK/B's cash conversion ratio of 4.26 is significantly higher than its peers and the industry average (-13.16), indicating efficient management of working capital.

6. Growth and Future Prospect:

   • BRK/B's revenue growth has been inconsistent, with a 5-year CAGR of 7.84%, lagging behind the peer average of 9.8%.
   • Its net income growth has also been volatile, with a 5-year CAGR of 1.8%, below the peer average of 5.82%.
   • BRK/B's free cash flow growth has been weak, with a 5-year CAGR of -12.55%, significantly underperforming its peers.
   • However, BRK/B's EBIT margin growth has been relatively strong, with a 5-year CAGR of 3.97%.

7. Potential for Investment:

   • BRK/B presents a compelling investment case for value-oriented investors seeking long-term capital appreciation, driven by its size, stability, and superior profitability.
   • Its strong financial position, characterized by exceptional liquidity and a conservative debt profile, provides a solid foundation for sustained growth.
   • However, investors should be aware of its inconsistent revenue and earnings growth, as well as its weak free cash flow generation.

8. Key Risks and Considerations:

   • BRK/B's size and complexity may pose challenges for efficient management and decision-making.
   • Its reliance on acquisitions for growth may expose it to integration risks and potential overpayment for target companies.
   • Fluctuations in the insurance and financial markets may adversely affect its earnings and investment portfolio.
   • BRK/B's succession planning and key person risk, particularly concerning Warren Buffett's eventual departure, remain important considerations for investors.

9. Overall Assessment:

   • Berkshire Hathaway is a financial powerhouse with a dominant market position, superior profitability, and exceptional financial health.
   • While its growth rates in revenue and free cash flow have been lagging, its strong earnings and solid financial position make it an attractive option for value-oriented investors seeking long-term capital appreciation.
   • However, investors should carefully consider the potential risks and challenges associated with its size, complexity, and reliance on acquisitions.