Berkshire Hathaway (BRK.B) Q3 Earnings: Cat Losses To Hurt?

Berkshire Hathaway Inc. (NYSE:BRKa) BRK.B is expected to report third-quarter 2017 results on Nov 3, after the market closes. Last quarter, the company delivered a negative earnings surprise of 9.73%. Let’s see. how things are shaping up for this announcement.

Factors to be Considered This Quarter

Berkshire Hathaway has likely reported a decline in operating earnings in the soon-to-be-reported quarter, mainly due to lower operating earnings from Insurance Operations as well as Finance & Financial Products. In fact, the Zacks Consensus Estimate for earnings is currently pegged at $1.88, reflecting a noticeable decline of 4.6% from the year-ago quarter.

Also, the property and casualty (P&C) insurer has likely witnessed weak underwriting results due to the significantly higher catastrophe losses arising from the unprecedented hurricane activity occurring during the third quarter. This will not only impact the underwriting profitability of the company but also render volatility to the P&C insurer’s earnings.

However, the company’s Railroad, Utilities and Energy units have likely witnessed a rise in operating revenues, driven by a higher contribution from both BNSF and Berkshire Hathaway Energy. In addition, the segment has possibly displayed improved net earnings in the yet-to-be-reported quarter, driven by increased earnings from the railroad as well as energy businesses.

Earnings Whispers

Our proven model does not conclusively show that Berkshire Hathaway is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Berkshire Hathaway has an Earnings ESP of -9.33%. This is because the Most Accurate estimate is pegged at $1.70, lower than the Zacks Consensus Estimate of $1.88. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Zacks Rank: Berkshire Hathaway carries a Zacks Rank #3, which though increases the predictive power of ESP, a company however, needs a positive ESP to be confident about an earnings surprise.

We caution against all Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Some stocks worth considering from the finance sector with the right combination of elements to surpass estimates this quarter are as follows:

Apollo Investment Corporation (NASDAQ:AINV) is set to report third-quarter earnings on Nov 3 with an Earnings ESP of +2.13% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Equity Investment Life Holding Company (NYSE:AEL) has an Earnings ESP of +0.40% and holds a Zacks Rank #2. The company is set to report third-quarter earnings on Nov 6.

Cherry Hill Mortgage Investment Corporation (NYSE:CHMI) has an Earnings ESP of +0.95%. The Zacks #3 Ranked company is set to report third-quarter earnings on Nov 7.

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