BRKA recently sold for $140,000 per share. The stock may be under some pressure after its recent earnings release, showing a quarterly earnings decline. Those who use PE ratios to value stocks may also focus on the stock selling for 16X trailing earnings, with the prospect of a tougher insurance climate in 2008. However, PE ratios are the least sophisticated way to value stocks, and I believe BRKA would be conservatively valued at $152,000 per share.

1) The GSO deal may be dilutive to book value. BX recently announced the purchase of a hedge fund, GSO. We believe this deal may be dilutive to Blackstone’s book value. In the absence of public information, the following analysis is theoretical, but we think worthwhile. Using Och Ziff as a comparable for GSO, Och Ziff’s price/assets under management was recently about 25%. GSO was bought for about 10% of assets under management. Och Ziff has a price/ book value of 12X. Assuming GSO’s book value stands in the same proportion to its assets under management as do Och Ziff’s that would male BX’s purchase of GSO at 5X book, though probably the purchase price was more at Och Ziff’s multiple.

EchoStar Communications (DISH) has significant strategic value in this process. A spinoff entity from EchoStar will become effective 1/1/2008. This entity will house EchoStar’s infrastructure assets [SATS], while the remaining entity will be comprised of EchoStar’s pay-TV business (the new Dish).

As interest rates rise, tech is viewed as being less interest rate sensitive, and more removed from a feared economic slowdown which will affect the consumer first.

As to Google's valuation, it all comes down to what decision is made about the terminal multiple. In Insight's 30 year discounted cash flow analysis [DCF], a 25% return on invested capital in year 30 has been assumed, as has been a 3% required growth rate. The big question is how to estimate capital expenditures (cap ex) in the terminal year of the DCF.

But to structure a reverse Morris Trust, it is necessary that a larger entity be merged into a smaller entity. Pre-merger Citadel's equity was valued more highly than ABC radio stations. So, how did the companies manage to structure this deal as tax free? A special dividend will be paid to only Citadel shareholders prior to the merger with the ABC Radio Business, thus increasing debt and shrinking Citadel's equity and enabling Disney to have a greater than 50% equity interest in the merged Citadel-ABC entity.

Yet, we do not think the problems in the health insurance sector are any more problematic than those in the hospital sector, which faces such problems as possible cuts in insurance and Medicare payments, and the trend away from hospitalization in general. Any yet HCA, a major hospital operator, has recently been the subject of a leveraged buyout offer [LBO] by a private equity consortium.

One way to understand the stock being down 7 points today is to understand that given the company’s lower guidance, we estimate that ten cents per share in projected earnings for 2006 may be lost. Given that the company traded for about 40X earnings for 2007, if a 40 multiple is put on ten cents that equates to a reduction in price of $4.00, which is in the range of how much the stock has been down today. But even if we amend our earnings estimate to $.75 for fiscal 2007, the stock is still trading for over 30x that number. As we have said in our previous post, that is a rich valuation.

If we were to place a 20x multiple on an estimate of fiscal 2007 earnings of $.75, that would imply a price target of $15.00. Our DCF analysis projects a higher price for Amazon than does our PE analysis. Why? As we stated on the 7/12/06 post, when the market gets "nervous", it "believes" less in future cash flows. Cash flows are what drive the DCF model. When the market gets "nervous" it relies more on what "is" the case in the present, that being earnings in the near future.

We continue to believe that Centex has at least 10-15% downside from current levels. Based on the company’s shrinking operating earnings per unit, we can easily make a case for operating earnings in the $5.50 per share range for Centex’s 2007 year, even with the company’s stock buybacks. This estimate is well below the company’s guidance of $7.00 per share.

As reported in its 8K, the company’s buybacks in the last quarter were at average prices well above its current stock price. Thus, those buybacks were not value enhancing to shareholders. It should also be remembered that buybacks serve to increase leverage, and make the company riskier, as bondholders are well aware.

We think the nasty correction in real estate has far from run its course. When consumer and investor sentiment turns negative on real estate it's very hard to change. It will take something dramatic to turn the tide on real estate, like sustained rate decreases by the Fed, which Insight does not see happening anytime soon.

As our post of July 6,2006 brings out, we have concerns about the health of the overall US economy. Within that theme, as money managers gravitate to more defensive stocks, cyclical and consumer dependent companies are more at risk. One of the lessons of the stock market decline of 2000-2003 was that technology companies are indeed cyclical in nature, and not immune to the fortunes of the overall economy.