Can Berkshire Hathaway (BRK.B) Earnings Surprise in Q3?

Berkshire Hathaway Inc. (BRK.B) is set to report third-quarter 2014 results after the market closes on Nov 7.

In the last quarter, this conglomerate delivered earnings in line with estimates. The average beat for the trailing four quarters is a meager 0.3%.

Will Berkshire Hathaway be able to keep its earnings streak alive this quarter? Let's see what factors might have influenced the earnings report this time around.

Factors Likely to Influence Q3 Results

Berkshire Hathaway generates earnings from different verticals since it houses a range of businesses from ice cream to insurance. Its bottom line is therefore buffered against the shocks of any single factor. Several big and small acquisitions made by Warren Buffett over the past five decades along with recent acquisitions will drive the company’s earnings. More specifically, we expect that its biggest segments – insurance, railroad and energy, and finance and financial products – will contribute to the quarter’s earnings to a large extent.

In the last quarter, the biggest contributor to the group’s revenue was its railroad and energy business. We expect this performance to continue with the economy having gained momentum and more movement of goods. Earnings may, however, be affected by service related challenges.

Moreover, no significant catastrophic claims so far this year will provide an extra cushion to the insurance segment’s bottom line. However, the segment’s earnings could be lower than the year-ago quarter due to large gains from Swiss Re quota-share contract in Berkshire Hathaway Reinsurance Group in 2013.

The company’s finance and financial products’ segment is also expected to perform well after enduring a soft housing market. We expect an uptrend in this business segment given that the housing market is gradually recovering.

Earnings Whispers

At least our proven model does not conclusively show that Berkshire Hathaway is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. However, that is not the case here as you will see below.

Zacks ESP: Berkshire Hathaway’s Earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $1.70 per share.

Zacks Rank: Berkshire Hathaway has a Zacks Rank #2 (Buy). Though Zacks Rank #1, 2 or 3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

Stocks to Consider

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Kemper Corporation (KMPR) has an Earnings ESP of +13.33% and a Zacks Rank #2.

Navigators Group Inc. (NAVG) has an Earnings ESP of +10.19% and Zacks Rank #2 .

PennyMac Financial Services, Inc. (PFSI) has an Earnings ESP of +2.13% and a Zacks Rank #2.

Read the Full Research Report on BRK.B
Read the Full Research Report on NAVG
Read the Full Research Report on KMPR
Read the Full Research Report on PFSI


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