Earnings

Critical Comparison: Berkshire Hathaway Inc. (BRK-B) vs. Chubb Limited (CB)

Berkshire Hathaway Inc. (NYSE:BRK-B) shares are up more than 13.14% this year and recently increased 0.39% or $0.72 to settle at $184.40. Chubb Limited (NYSE:CB), on the other hand, is up 14.55% year to date as of 11/13/2017. It currently trades at $151.34 and has returned 1.43% during the past week.

Berkshire Hathaway Inc. (NYSE:BRK-B) and Chubb Limited (NYSE:CB) are the two most active stocks in the Property & Casualty Insurance industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BRK-B to grow earnings at a 8.80% annual rate over the next 5 years. Comparatively, CB is expected to grow at a 4.16% annual rate. All else equal, BRK-B’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 17.85% for Chubb Limited (CB).

Valuation




BRK-B trades at a forward P/E of 22.52, a P/B of 0.00, and a P/S of 1.95, compared to a forward P/E of 14.09, a P/B of 1.40, and a P/S of 2.17 for CB. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. BRK-B is currently priced at a -10.81% to its one-year price target of 206.75. Comparatively, CB is -6.98% relative to its price target of 162.69. This suggests that BRK-B is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.20 for BRK-B and 2.10 for CB, which implies that analysts are more bullish on the outlook for BRK-B.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. BRK-B has a short ratio of 3.42 compared to a short interest of 3.75 for CB. This implies that the market is currently less bearish on the outlook for BRK-B.

Summary

Berkshire Hathaway Inc. (NYSE:BRK-B) beats Chubb Limited (NYSE:CB) on a total of 8 of the 13 factors compared between the two stocks. BRK-B is growing fastly, higher liquidity and has lower financial risk. In terms of valuation, BRK-B is the cheaper of the two stocks on book value and sales basis, BRK-B is more undervalued relative to its price target. Finally, BRK-B has better sentiment signals based on short interest.

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