Should You Avoid Berkshire Hathaway (BRK.B) Stock Now?

On Aug 10, Zacks Investment Research downgraded Berkshire Hathaway Inc. (NYSE:BRKa) BRK.B to a Zacks Rank #4 (Sell).

Why the downgrade?

Although Berkshire Hathaway reported record earnings of $1.87 per share in the second quarter of 2016, the bottom line plunged 19% year over year. The year-over-year underperformance is attributable to a decrease in operating earnings from Railroad, Utilities and Energy. With respect to the surprise trend, the company delivered negative surprises in two of the last four quarters, with an average miss of 1.54%.

The property and casualty (P&C) insurer witnessed a decline of 10.1% year over year in operating revenues at the Railroad, Utilities and Energy segment in the second quarter. The decline stemmed from lower revenues in railroad business and a soft energy business.

In addition, operating earnings from this segment came in at $1.8 billion, down 14.3% year over year, owing to a 20% plunge in earnings from the railroad business.

Also, the company’s Insurance and Other segment incurred 7.3% higher insurance losses and loss adjustment expenses, and witnessed a 7.8% rise in cost of sales and services. Selling, general and administrative expenses of the business increased 20.4% year over year to $4.1 million.

The Finance and Financial Products segment saw an increase of 18.4% in cost of sales and services, 10.2% in selling, general and administrative expenses as well as a 6.2% in interest expenses, all on a year-over-year basis. Higher expenses negatively impacted the earnings of the company in the reported quarter.

Following a soft quarter, the Zacks Consensus Estimate for 2016 and 2017 moved south as 50% of the estimates were revised lower in the last 7 days. The same for 2016 dipped 2.3% to $7.23 per share and inched down 0.3% to $7.86 per for 2017.

Stocks to Consider

Though we presently prefer to stay cautious Berkshire Hathaway, investors may consider some better-ranked stocks from the P&C industry like Allied World Assurance Company Holdings, AG (NYSE:AWH) , Argo Group International Holdings, Ltd. (NASDAQ:AGII) and National Interstate Corporation (NASDAQ:NATL) . Each of these stocks sports a Zacks Rank #1 (Strong Buy).