Berkshire Hathaway (BRKB) shares are down about 1% today following news late Tuesday that Chairman Warren Buffett has been diagnosed with stage 1 prostate cancer.
There is no indication that the cancer is even remotely life threatening and Buffett has said he will continue working through much of his two-month radiation treatment. On Fox Business Network this morning, Buffett said: �You don�t have to worry at all because I�m not worried. This will have no effect and does not interfere with anything I do.�
But any sign of the 81-year-old’s frailty seems to make investors jumpy. For one thing, it reminds investors of Buffett’s importance to the company.
“This announcement again highlights the key-man risk involved in investing in BRK.A/B shares because Mr. Buffett may be the only one who can manage the company with as much success as in the past,” notes Barclays analyst Jay Gelb.
That said, Buffett has had health problems in the past, and the stock has rewarded investors willing to deal with the initial turmoil, Gelb notes.
“As a point of reference, in 2000, Warren Buffett announced he was undergoing surgery to remove benign polyps in his colon. BRK.A shares fell 4% (vs -2% for the S&P 500) on the day following the announcement, and declined 5% (vs no change in the S&P 500) from the date of the announcement (June 21, 2000) until July 25, 2000 when Berkshire announced the surgery was successful. The stock subsequently recovered, increasing 6% the day following the surgery (vs -1.5% for the S&P 500)…CEO succession remains a risk, although less so since Warren Buffett CEO and investment management succession plan is now in place. Berkshire’s shares are attractively valued in our view at 1.15x 1Q12E BV of $70.51, which approaches a historical low.”
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