Brian Meredith, UBS senior insurance analyst, joins 'The Exchange' to discuss his bullish outlook on Berkshire Hathaway,

New York

UBS senior insurance analyst Brian Meredith has stated that Berkshire Hathaway's stock price does not reflect a so-called 'Buffett premium,' countering claims that the company's valuation was inflated due to Warren Buffett's leadership. Meredith explained that, based on his analysis of historical valuations, there was no significant premium attributed to Buffett, and the company's strategic advantages remain intact.

Despite recent underperformance compared to the S&P, Meredith remains optimistic about Berkshire Hathaway's prospects, citing the strength of its insurance businesses and a solid balance sheet with substantial cash reserves. He believes the company offers defensive qualities in uncertain economic environments and potential for earnings growth, making it a strong holding for investors.

UBS: There wasn't 'Buffett premium' built into Berkshire's stock price

And check out the divergence between Berkshire and the S&P during that time, the S&P up 11 percent, Berkshire down about the same amount. But my next guest remains positive on the stock, just raised his price target and earnings estimates on the strength of the insurance businesses like GEICO and Berkshire Hathaway REIT. Joining us now is Brian Meredith, senior insurance analyst at UBS. Brian, welcome. Thanks for having me, Kelly. Does the underperformance catch you by surprise? Um, not really, just because coming into the annual meeting, Berkshire stock was a little bit on the expensive side. So I think coupled with the fact that Buffett decided that he was going to become chairman, I think it gave an excuse for some people maybe to pare down positions. That said, the company itself still has all those huge competitive edges that it still, you know, had when Buffett was CEO. It surprised me to hear Bill Smead, who's been a longtime admirer of Buffett, a longtime investor in the stock at the top of the hour. He said he's exited his position. He just doesn't, he thinks there was a Buffett premium in the stock that shouldn't be there anymore. Yeah, I don't think there was a Buffett premium in the stock to begin with, Kelly. My analysis going back, looking at the valuations, there wasn't a Buffett premium. And the other thing that I think is incredibly important here for investors to understand is that the same college strategic advantages that Berkshire had exist today with or without Buffett, that is the fact that you got permanent capital, an ironclad balance sheet, you know, $350 billion of cash in the balance sheet, all sorts of huge advantages, as well as these great businesses. From the sort of insurance or fundamental standpoint then that you're combing over, because a lot of people will go, come on, of course there's a Buffett premium. But what would you say the business is throwing off in terms of numbers to justify the valuation or the level that it's currently trading at? Yeah, so what I would say, if we look at our price target, right, which has still got a reasonable amount of upside here, we do the sum of the parts analysis of it. And if you look at kind of where their non-insurance businesses are running right now, you put kind of a market multiple on them, you're going to get, you know, a good value for them, as well as if you look at the insurance businesses and you just look at what the generating, you know, earnings out of those are, which handily Geico and a couple of the other businesses are seeing some improvement here. You actually could start to see some upward estimate revisions, kind of like we increased our estimates. So I think there's a lot of good earnings power still here for Berkshire Hathaway. The other thing that is really important to understand here is Berkshire's call it this great company in an uncertain environment, macro environment. It's very defensive, but also a number of businesses that will actually, you know, do quite well in improving the economy. So in my view, it's a really good business to hold onto here.

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