Andrew Bary

Some of the "Warren Buffett premium" appears to be leaking out of Berkshire Hathaway stock.

Since Buffett surprised investors at the May 3 Berkshire Hathaway annual meeting with plans to give up the CEO job at the end of 2025, the class A stock has dropped about 6% to $758,579, while the S&P 500 index has rallied over 3%. The Berkshire Hathaway class B stock is down a similar amount since the meeting to $506.18.

Berkshire Hathaway executive Greg Abel is set to become CEO at the start of 2026 while Buffett, who has run the company for 60 years, will remain chairman.

Under Buffett, Berkshire Hathaway has an incomparable long-term record, and investors may be taking profits and a wait-and-see approach to Abel, who has headed the company's vast non-insurance operations since 2018.

Buffett has regularly praised Abel's management skills but it remains to be seen how Abel handles capital allocation -- which is critical to Berkshire Hathaway, given that it is sitting on over $330 billion in cash and equivalents. Its market capitalization is $1.1 trillion.

The company continues to find little to do with the cash. Berkshire Hathaway was a net seller of stocks in the first quarter after huge net equity sales of more than $130 billion in 2024, mostly Apple stock.

Berkshire Hathaway hasn't made a notable acquisition since it bought insurer Alleghany for about $12 billion in 2022. Berkshire Hathaway handicaps itself in deal negotiations because Buffett refuses to participate in corporate auctions.

Berkshire Hathaway stock is lagging after a period of sharp outperformance leading into the annual meeting.

Berkshire Hathaway class A stock closed at a record $809,350 on May 2, the day before the meeting. On that date, Berkshire Hathaway was up 19% in 2025, and about 22 percentage points ahead of the S&P 500. With the pullback in its shares, Berkshire Hathaway is now up 11% in 2025, and ahead of the index by a similar margin.

"Trading above historical averages, with tepid top-line growth, a mixed profit outlook in several core units, a lack of any year-to-date share repurchases, and the likely extraction of the 'Buffett' premium, we view the shares as fairly valued," wrote CFRA analyst Cathy Seifert immediately after the annual meeting. Berkshire Hathaway also released its first-quarter earnings on the meeting date. She has a Hold rating on the stock. Analysts see little growth in Berkshire Hathaway's operating profits in 2025 and 2026.

KBW analyst Meyer Shields, who has a Market Perform rating on the stock, wrote after the meeting that the stock looked fully priced, noting "emerging management succession, which will probably impact investors' view of Berkshire more than it will actual operations."

Berkshire Hathaway hasn't repurchased stock from May 2024 through late April. That's a sign that Buffett, who oversees the buyback program, doesn't view the stock as inexpensive.

Berkshire Hathaway stock didn't look cheap at its peak -- as Barron's argued in an article before the annual meeting. At the high, the stock traded for nearly 1.8 times book value and 26 times projected 2025 earnings -- expensive on both measures relative to the past 15 years.

At the peak, Berkshire traded above some estimates of its intrinsic value -- essentially a sum-of-the-parts analysis. That technique is favored by Buffett. UBS analyst Brian Meredith, who has one of the few Buy ratings on Berkshire Hathaway stock among analysts, put intrinsic value at under $700,000 per class A share in a note after the annual meeting.

The stock's valuation has since come down to about 1.65 times book and 24 times estimated earnings -- although Berkshire Hathaway's price/earnings ratio adjusted for the profits of the companies in its equity investment portfolio is lower than 24. Some Berkshire Hathaway investors focus on these "look-through" earnings. Berkshire Hathaway has traded at an average of 1.5 times book value in recent years.

One risk that the Buffett premium in Berkshire Hathaway stock continues to erode. On the other hand, Berkshire Hathaway bulls would argue that at current prices, there isn't much of a premium left given the company's strong earnings power and balance sheet. That suggests Berkshire Hathaway's underperformance relative to the S&P 500 could be nearing an end.

Buffett, who turns 95 in August, said he plans to dial back his role in 2026, but will still be in the office every day. "I would still hang around and conceivably will be useful in a few cases," he said at the annual meeting.

As chairman and controlling shareholder, Buffett probably will have a hand in key investment and business decisions as long as he is able, and that's reassuring to investors.

Write to Andrew Bary at andrew.bary@barrons.com

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May 29, 2025 16:45 ET (20:45 GMT)

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