While narrow-moat-rated Berkshire Hathaway’s BRK.A/BRK.B annual meeting has always been entertaining, it has not always been a huge source of meaningful insight. While this year’s event had the feel of past meetings – the setting was the same, throngs of shareholders were present, and the company’s top managers were onstage taking questions from CNBC’s Becky Quick and shareholders during the meeting- there was a big shocker in CEO Warren Buffett’s announcement that he would be recommending to Berkshire’s board of directors that Greg Abel take the reins at the end of this year.
While we had not anticipated this announcement as we went into the meeting, we had noted in our report “10 Questions for Berkshire Hathaway’s 2025 Annual Meeting” that we were asking far more succession-related questions than we had in past years, adding that perhaps that was a sign we were getting closer to the endgame for Buffett’s time with the firm. Following the November 2023 death of Charlie Munger, Berkshire’s vice chairman for four and a half decades and Buffett’s longtime confidant, we’ve heightened our focus on succession planning at the firm, not just from a personnel perspective, but also when thinking about capital allocation.
Summing up our key takeaways from this year’s meeting, we would highlight the following:
Buffett’s retirement announcement was a shocker to not only investors, but also board members and even Abel. Perhaps Buffett was concerned that the news would leak, like when Munger let it slip that Abel would be the next CEO at the May 2021 annual meeting, prompting him to keep the information very close to the vest. It worked, because even Abel seemed shocked by the announcement
Abel’s ability to be both investor and operator will now be scrutinized even more. With the day that Abel will take the reins looking like it is rapidly approaching, we think he will be far more scrutinized than he ever has been. This will include a deeper look at his time running BHE and the investment and capital allocation decisions he has been involved in, especially since his responsibilities at Berkshire were elevated seven-plus years ago.
Shareholders will also need to get a sense of how Abel’s inner circle is shaping up, as he will need to have more corporate staff than Buffett ever did if he is expected to function as both operator and investor once he takes the reins. Berkshire’s biggest issue over the past decade or so has been its inability to put its retained earnings in productive investments or operating businesses, which has allowed the firm’s cash balance to continue to expand.
When Abel ascends to his new chief executive role, we think Berkshire’s expanding cash hoard and capital allocation priorities will be top of mind. As we noted in our pre-meeting piece, Abel’s first order of business may be tackling the company’s balance sheet bloat. While having a ton of cash on hand keeps the balance sheet strong and lets the firm move quickly if investment or acquisition opportunities arise, we think Berkshire has way too much capital on its books.
Berkshire’s expanding cash hoard will become a bigger topic of conversation with the change of management happening at the end of the year. Buffett has consistently pointed to a dearth of attractive investment opportunities during the past 15 years for allowing a lot of that excess cash to build up. And even in periods when Berkshire has been able to put a ton of capital to work, it ended up with more cash on hand than it knows what to do with. Meanwhile, some of the bigger deals that the company has done since the global financial crisis—such as the Kraft Foods merger with Heinz (2014-15) and the Precision Castparts acquisition (2015-16)—have come up short of expectations.
We continue to believe that some of Berkshire’s difficulties putting capital to work can be ascribed to a more competitive acquisition environment for the types of assets the insurer generally pursues, with private-capital fundraising picking up in the aftermath of the global financial crisis and the funds behind those capital-raising efforts holding an ever-expanding cache of dry powder to dedicate to future deals.
That said, we think most of the blame for Berkshire’s inability to work down its cash balances can be tied to the firm’s own acquisition criteria, which have historically kept the company from engaging in unfriendly takeovers, auctions, and bidding wars. That’s not to say it’s a bad strategy, as being this disciplined can keep a company like Berkshire from overpaying for assets; just that Buffett’s strict criteria have likely eliminated much of the wiggle room that might be needed at times to get deals done.
The insurance business has come down to earth some, even though Geico continues to improve. The insurance business is starting to come down to earth. We had been hoping for more insight into the competition issues that both BNSF, the firm’s US-based railroad, and Geico have faced for the past five years or so. We highlighted these problems and directed questions toward them in our pre-meeting report. Our questions were aimed at where Geico was with its telematics efforts—noting that while the firm was generating profitable growth again, the company’s earned premium growth was still well behind Progressive’s—and what BNSF was doing about precision scheduled railroading, concerned that it is nothing more than tech stack issues keeping the firm from adopting the methodology, like we saw with Geico and telematics. During the meeting, a question was put to Jain early on about the significant challenges Geico has faced modernizing its IT systems to allow telematics into its underwriting, which have it lagging peers such as Progressive when it came to matching rate to risk, as well as about what specifically Combs had been doing over the past five years to improve Geico and its competitive advantages.
In response, Jain noted that “Todd has done a great job for us in terms of turning around the operations. When he took over, there were two major issues that Geico was behind its competitors on. Firstly … matching rate to risk. And secondly, telematics.” Jain added that the auto insurer was way behind its peers five or six years ago when it came to having a fully integrated telematics system in place, but that the firm has “made rapid strides,” arguing that “our telematics (offering) at Geico is about as good as anyone else is today.”
In terms of better matching rate to risk, Jain stated that Geico is also in a better place relative to peers, which, in our view, can be seen in the company’s loss ratio and its expense ratio over the past year or so. Geico remained solidly in the black during the first quarter, posting a record-setting loss ratio of 69.0% (after seeing its loss ratio drop to a record 69.4% in the fourth quarter of 2024). This was better than the 72.4% loss ratio that the firm posted in the prior year’s period, and also significantly better than its five-year average first-quarter loss ratio of 78.3% during 2020-24.
The company’s shares remain slightly overvalued, with Buffett even shutting down share repurchases during the past year. Our new fair value estimate is equivalent to 1.49 and 1.39 times our estimates, respectively, for Berkshire’s book value per share at the end of 2025 and 2026. The new estimate is also similar valuation-wise to where we were when we updated our fair value estimate for Berkshire in October.
Given the rally in the company’s shares last year—with the Class A shares up 25.5% and the Class B shares increasing 27.1%—and their continued rise since the start of 2025—with both share classes up around 19.0% year to date—Berkshire is now modestly overvalued relative to our fair value estimates. At their closing prices on May 2, both share classes were trading at an 11% premium to our fair value estimates, both of which imply high-single-to-low-double-digit declines from here for investors, should the shares revert to our estimated values.
Over time, we’ve come to believe our fair value estimate for the firm is in line with Buffett’s own thinking on the company’s intrinsic value, especially when looking at the falloff we’ve seen in share repurchases during the past year and Berkshire’s share price relative to our fair value estimate. When the company updated its share repurchase program in 2018 to allow for more flexibility in buybacks, it noted that it would repurchase shares when Buffett believed “the repurchase price (was) below Berkshire’s intrinsic value, conservatively determined.”
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