Berkshire cut to 'underperform' by KBW, which cites Geico, tariffs, Buffett

By Jonathan Stempel

Oct 27 (Reuters) - Berkshire Hathaway BRKa.N has been downgraded to "underperform" by Keefe, Bruyette & Woods, which said lower car insurance margins, tariffs, falling interest rates, smaller clean energy tax credits and Warren Buffett's departure will weigh on its share price.

KBW analyst Meyer Shields, who had rated Berkshire "market perform," also cut his target price for the Omaha, Nebraska-based conglomerate's Class A shares to $700,000 from $740,000, in his report dated Sunday.

"Underperform" and "sell" ratings are rare on Wall Street. Berkshire shares closed at $738,500 on Friday, and fell nearly 1% in early Monday trading.

Buffett plans in January to hand the CEO title he has held since 1965 to Vice Chairman Greg Abel, though the legendary investor will remain chairman.

Berkshire Class A shares had lagged the Standard & Poor's 500 .SPX by more than 28 percentage points since Buffett announced the management change on May 3.

Shields said Berkshire's Geico car insurance business should see the percentage of premiums used to pay accident claims rise after two years of declines as it lowers rates and boosts marketing to recapture market share lost to rivals such as Progressive PGR.N.

He said the BNSF railroad's western U.S. focus makes growth vulnerable to higher tariffs and declining trade with Asian countries, especially China.

Shields also said falling interest rates will reduce income from Berkshire's cash holdings, which totaled $344.1 billion on June 30, while the accelerated phase-out of renewable energy tax credits under President Donald Trump's One Big Beautiful Bill Act could limit profit at Berkshire Hathaway Energy.

Buffett's departure is also a drag, reflecting his "likely unrivaled reputation and what we see as unfortunately inadequate disclosure that will probably deter investors once they can no longer rely on Mr. Buffett's presence," Shields wrote.

Berkshire is expected to report third-quarter results on November 1.