Berkshire Hathaway Ends 2016 With Mixed Results, Eye Toward M&A Opportunities

Warren Buffett released over the weekend his annual letter to Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B)'s shareholders, which according to analysts at Barclays, was consistent with what was expected and didn't include any surprise announcements.

Barclays' Jay Gelb highlighted the following highlights from Buffett's letter:

1. Berkshire is still looking for big acquisitions and the firm has an estimated $75 billion in cash that can be used for M&A deals.
2. Berkshire is believed to be the world's premier property-casualty insurance business.
3. However, Buffett has a poor outlook on the insurance industry's profits over the next decade.
4. Buffett wants to buyback Berkshire's stock at a price of up to 1.2x book value.
5. There were no updates to any succession plans.

Analyst Take

Gelb noted that Berkshire's insurance unit's streak of reporting an underwriting profit now stands at 14 years and continues to generate substantial no-cost float of $92 billion for investing.

Gelb continued that Berkshire should continue delivering strong earnings, returns and book value per share growth. Nevertheless, the firm's 6 percent decline in fourth-quarter operating earnings per share to $2,665 per A share was expected although it nevertheless represents a "noisy result."

Looking forward, Gelb lowered his full-year 2017 earnings per share estimate (A shares) to $10,877 from a previous $11,243 due to the non-economic impact of the AIG reinsurance transaction. Nevertheless, Berkshire's stock is still attractive at 1.48x book value and the analyst's price target of $295,000 implies a multiple of 1.55x 2017E book value.

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