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Is Berkshire Hathaway a Buy After Alleghany Acquisition?

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Berkshire Hathaway rose over 2% this morning on news of its agreement to acquire insurer Alleghany in a blockbuster deal valued at $11.6 billion. Billionaire Warren Buffett’s crown jewel, Berkshire stated the company is paying $848.02/share in cash – a more than 25% premium to Alleghany’s closing price last week.

The agreement is expected to close later this year during the fourth quarter. Alleghany Y shares surged more than 25% on the announcement.

The deal strengthens Berkshire’s insurance arm that already includes the likes of Geico and reinsurance giant Gen Re. Y, which is often referenced as a mini-Berkshire, experienced a similar journey from a mainly railroad holding firm to an insurance and investment company. Alleghany now primarily provides property and casualty reinsurance and insurance products globally.

From my perspective, this appears to be another potentially lucrative deal in a long list of substantial acquisitions. Berkshire’s purchase reunites Buffett with Alleghany CEO Joseph Brandon, who originally led Berkshire’s Gen Re unit from 2001 to 2008. Buffett knows exactly what he’s getting and believes Berkshire will be the “perfect permanent home” for Alleghany.

BRK.B shares had already been outperforming this year, and it appears investors are viewing the details of the Y purchase favorably as the stock hit an all-time high today. Berkshire Hathaway is part of the Zacks Insurance – Property and Casualty industry group, which currently ranks in the top 26% of approximately 250 industries.

Investing in stocks contained within leading industry groups can provide a constant ‘tailwind’ and increase the odds of success. Also note the favorable characteristics for this industry group:

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let’s take a closer look at Berkshire’s investment picture.

Berkshire Hathaway Inc. (BRK.B)

Berkshire Hathaway is a holding company for a multitude of businesses. The company is primarily engaged in the insurance, freight rail transportation, and utility businesses globally. BRK.B also generates, stores, and distributes electricity from a host of energy sources such as natural gas, nuclear, and geothermal. An investment group led by Buffett took full control of BRK.B in 1965. Berkshire Hathaway is famously headquartered in Omaha, NE.

The atypical conglomerate is well-known for its humble beginnings and has now grown to more than 90 subsidiaries engaged in business ranging from chocolates and ice cream to property and casualty insurance. BRK.B maintains a strong capital position and substantial cash holdings, which were slightly reduced due to the recent Alleghany acquisition. Berkshire buys back stock regularly with $27.1 billion worth of shares repurchased last year.

BRK.B has surpassed earnings estimates in three of the past four quarters. The company most recently posted Q4 EPS of $3.27, a +17.2% surprise over the $2.79 consensus estimate. BRK.B has delivered a trailing four-quarter average earnings surprise of +11.86%, helping the stock advance nearly 40% in the past year.

Berkshire Hathaway Inc. Price and EPS Surprise

Berkshire Hathaway Inc. Price and EPS Surprise
Berkshire Hathaway Inc. Price and EPS Surprise

Analysts covering BRK.B have increased their full-year EPS estimates by 2.31% in the past 30 days. The 2022 Zacks Consensus EPS Estimate is now $12.86, reflecting potential growth of 6.11% relative to last year.

BRK.B is ranked a Zacks #2 (Buy) and looks to continue its outperformance. Make sure to put it on your watchlist if you haven’t already.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report

Alleghany Corporation (Y) : Free Stock Analysis Report

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