Keefe, Bruyette & Woods (KBW) downgraded Berkshire Hathaway to underperform, citing mounting succession risks following Warren Buffett’s upcoming retirement and multiple business headwinds that could pressure earnings in the year ahead.
The brokerage cut its rating from neutral and lowered its price target for Berkshire’s Class A shares to $700,000 from $740,000, implying a roughly 5% downside from Friday’s close of $738,500.
Buffett’s succession adds to market caution
In a note titled “Many Things Moving in the Wrong Direction,” analysts led by Meyer Shields highlighted that Berkshire faces unique challenges tied to Buffett’s succession and softer performance across key businesses.
Buffett, 95, announced earlier this year that he plans to step down as CEO at year-end, ending a six-decade tenure that shaped Berkshire into one of the world’s largest and most admired conglomerates.
The analysts said Berkshire’s succession uncertainty remains a major factor weighing on investor sentiment.
“Warren Buffett’s likely unrivaled reputation and what we see as unfortunately inadequate disclosure will probably deter investors once they can no longer rely on Mr. Buffett’s presence at Berkshire Hathaway,” KBW wrote.
The so-called “Buffett premium” — the extra valuation investors have long assigned to Berkshire because of Buffett’s leadership and capital allocation record — appears to be fading.
The company’s shares have tumbled from all-time highs, underperforming the broader market as investors reassess its growth prospects without Buffett at the helm.
Business headwinds across core divisions
Beyond leadership concerns, KBW identified a range of operational pressures across Berkshire’s diverse portfolio, including insurance, railroads, and energy.
The firm expects insurance profitability to weaken, particularly at Geico, which has been cutting personal auto rates and boosting marketing to regain market share.
Berkshire Hathaway Reinsurance Group is also facing a tougher environment.
A mild hurricane season has weighed on property-catastrophe reinsurance pricing, a trend that could reduce both premium volumes and profitability in coming quarters, KBW noted.
In the second quarter, Berkshire’s operating profit fell 4% year over year to $11.16 billion, driven by lower insurance underwriting income.
KBW expects that trend to continue as reinsurance conditions remain soft.
Investment income, a key source of earnings in recent years, could also come under pressure.
With short-term interest rates declining, returns on Berkshire’s massive cash and Treasury portfolio are likely to moderate, reducing a steady source of income that had supported recent results.
As of June, Buffett’s cash hoard stood at $344.1 billion, near record highs.
Economic and policy pressures loom
KBW also pointed to headwinds in Burlington Northern Santa Fe (BNSF), Berkshire’s railroad arm, noting that the division’s inflation-adjusted revenue historically tracks US–China trade activity.
Persistent tariff pressures and weaker trade flows could constrain growth, the firm warned.
In the energy sector, Berkshire Hathaway Energy could see profitability decline as the “One Big Beautiful Bill Act” accelerates the phase-out of clean-energy tax credits, reducing the returns of future renewable projects.
Despite these challenges, Berkshire’s Class B shares are still up 8.6% in 2025, though they lag the S&P 500’s 15.5% year-to-date gain.
As Berkshire prepares to report third-quarter earnings on Saturday, investors will be watching closely to see if the conglomerate can navigate mounting economic headwinds and leadership transition concerns while maintaining its track record of resilience.
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