The Pandemic Impact on Berkshire Hathaway

A recent Morningstar article offers insights from senior analyst Gregg Warren regarding the impact the pandemic will have on Berkshire Hathaway.

Here are some highlights of Warren’s comments:

  • It is difficult to predict the impact given that Berkshire is “not really the most transparent of firms when it comes to its operating subsidiaries.”
  • Morningstar foresees that the company will be impacted in three ways:
    • The low interest rate environment “opens up refinancing funding opportunities” but should also result in lower yields on cash holdings.
    • Increased volatility in equity and credit markets will impact Berkshire’s portfolio, but “should provide some opportunities for the firm to put more capital to work in the near term.”
    • The recession in the U.S. and across the globe will negatively impact Berkshire’s railroad businesses, although its insurance and utilities operations are “a bit more recession resistant than most.”
  • Regarding Berkshire’s competitive advantages, Warren argues that they will probably remain stable during the economic downturn and may in fact “strengthen depending on the positioning of the company relative to its peers.” He adds, “It’s not like Berkshire is the only one that’s going to be feeling losses. Pretty much across the board their peers are.”
  • According to Warren, “As we get more clarity on the impact the pandemic is likely to have on different aspects of the business…we expect to be updating our assumptions and perhaps might update our fair value estimate.”