Berkshire Hathaway: Trading At An Estimated 11.6x Earnings With An Intrinsic Value Of $180/Share
Left Shark Investing • 228 Comments
Left Shark Investing • 228 Comments
Today, 12:19 PM
- Checking the preliminary Q1 results released over the weekend, UBS's Brian Meredith says underwriting income from insurance and BNSF/BH Energy earnings appear to be below his team's estimates.
- Growth and underlying profitability at GEICO, however, improved as rate increases took hold.
- Overall comments from the annual meeting confirm Meredith's positive view on Berkshire (BRK.A, BRK.B). The bottom line is that the company continues to make acquisitions and investments allowing it to grow earnings faster than the S&P 500. There's also the redemption of Kraft Heinz preferred stock in June which will replenish Berkshire's cash position, leaving it with more than $60M to make purchases.
- While Buffett has about promised to buy back stock at 1.2x book or less, he's also held out the possibility of repurchasing shares at an even higher multiple if he can't find better things to do with the cash.
- His PT of $244.5K compares to the current $219.53K.
Today, 8:12 AM
- Following the Berkshire Hathaway (BRK.A, BRK.B) annual meeting on Saturday, Warren Buffett is spending the morning with CNBC.
- On IBM: He's still a buyer of the stock, though not aggressively so. His cost basis is a little less than $170 per share vs. the current $146. He's comfortable with the company, he says, or else he wouldn't own the stock. Yes, IBM has tough competition, but it's always been so and always will be so.
- Again defending Coca-Cola (NYSE:KO): It's "illogical" to tax sugar in soft drinks and not all sugar. He says he drinks five cans of Coke a day ... "I can't imagine anyone feels better than I do."
- On American Express (NYSE:AXP): There's no question that "payments" are being attacked on all fronts by some very smart people. Losing Costco was a big deal, but CEO Ken Chenault decided the economics didn't make sense. The company is buying back about 6% of the float each year, raising Berkshire's stake in AmEx without it having to lay out a dime. It's a wonderful business, but it's not a business that's competition-free, nor will it ever be.
- Turning to Yahoo (NASDAQ:YHOO): Obviously, they deteriorated significantly, and something has to change. On Marissa Mayer's $55M golden parachute ... Severance numbers throughout corporate America are a little bit crazy.
Sat, Apr. 30, 11:37 AM
- Capitalist Woodstock is being livestreamed for the first time ever. Watch here.
- Pressed (again) about how he squares his investment with Coca-Cola (NYSE:KO) with the health issues caused by too much sugar intake, Warren Buffett (BRK.A, BRK.B) says happiness is also important to health and longevity, and he chooses to get his calories "from things that make me feel good when I eat them." Munger is more direct: Questions like that are "immature and stupid."
- Unveiling preliminary Q1 numbers, Buffett takes note of a big drop in operating earnings for insurance - in part due to hailstorms in Texas - and railroads. While investment income about doubled Y/Y to $1.85B, Buffett says ignore it - it was due to the completion of the Duracell deal.
- Operating earnings of $3.737B in Q1 dipped from $4.24B a year ago. Net earnings of $5.59B rose from $5.16B thanks to that investment income.
- Asked why Berkshire has shifted to buying companies that are far more capital intensive than in the past, Buffett calls it a problem of prosperity. Small companies not needing capital can't move the needle for a company of Berkshire's size.
- Live blog at Marketwatch
Thu, Apr. 14, 6:47 PM
- Warren Buffett’s MidAmerican Energy (BRK.A, BRK.B) unveils plans for a $3.6B wind farm in Iowa with a capacity of 2K MW, the biggest economic development project in the state' history.
- Iowa already obtains 31% of its electric power from wind resources, more than in any other state, and the new Wind XI project would boost wind’s share to 40%, the company says; if approved by state regulators, the project would increase Iowa’s total wind resource by 50% to 6K MW when completed in 2020.
- MidAmerican is the top producer of wind power among U.S. regulated utilities and already operates nearly 3.5K MW in Iowa, or ~58% of the power it supplies its customers in the state; parent company Berkshire Hathaway is the third-largest U.S. wind farm owner.
- Now read Taking Buffett's returns from legendary to 'pretty good'
Tue, Apr. 12, 12:29 PM
- Berkshire (BRK.A, BRK.B) subsidiary Gen Re CEO Tad Montross plans to retire by year-end, according to a CNBC report.
- Montross reported directly to Warren Buffett, but a Gen Re rep tells CNBC Montross' successor will instead report to Ajit Jain, the man in charge of Berkshire's reinsurance operations, and oft-touted as Berkshire's next CEO.
Mon, Mar. 28, 4:13 PM
- Warren Buffett's stake in Wells Fargo (NYSE:WFC) hit 9.9% as of Dec. 31. Most of that is held by Berkshire Hathaway (NYSE:BRK.A).
- At 10%, Buffett would have to pass a review by the Federal Reserve in order to keep accumulating shares.
- His stake in WFC has climbed steadily from 6.7% since 2009 through stock purchases, and due to WFC's share repurchases.
- While the Fed typically tries to limit the ties between non-financial companies and banks, it has at times accepted a pledge by investors that they don't plan to influence a bank; this happened in the 90s when Buffett's stake in Amex rose above 10%.
- Now read Wells Fargo's Fundamental Valuation Might Surprise You »
Mon, Mar. 28, 8:55 AM
- "We believe that the current uncertain economic and market environment plays into the hands of Berkshire Hathaway (BRK.A, BRK.B), says UBS initiating coverage with a Buy and $244,500 price target (16% above Thursday's close).
- The company, says the team, has the ability to make acquisitions and/or invest in its operating units despite challenging environments, positioning it to grow earnings and book value faster than the S&P 500.
- This should ultimately lead to multiple expansion for BRK, which is currently trading well below its historical price/book multiple. The downside is limited thanks to Buffett's intention to buy back stock at 1.2x book value.
Tue, Mar. 8, 2:29 PM| Tue, Mar. 8, 2:29 PM | 22 Comments
Tue, Mar. 1, 12:01 PM
- After a 2% post-earnings gain yesterday, Berkshire Hathaway (BRK.A, BRK.B) sells for about 1.3x year-end book value of $155,501, writes Andrew Bary. That's only modestly above the 1.2x book or $186K per share at which The Oracle would be happy to repurchase stock, and - given the company's ample cash (around $40B after the Precision Castparts purchase) - $186K likely represents a floor for the shares.
- Plus, notes Bary, book value tends to rise by about $3K per share per quarter, given Berkshire's earnings run-rate.
- As Buffett has noted, he's delighted to buy at 1.2x book because Berkshire's intrinsic value "far exceeds" book value. One example: Accounting rules require the Kraft Heinz stake be carried at about $16.6B when its value is more like $25B. That's another $3K that could be added to book.
- A bull on the stock, Nomura's Cliff Gallant says book value could rise to $167K by year-end, pushing that 1.2x threshold to $200K, or only marginally less than the current price level.
- Succession risk? With the stock's cheap valuation, it's likely already priced in, says Bary, who picks Berkshire Hathaway Energy Chairman Greg Abel as the next chief.
Mon, Feb. 29, 8:18 AM
- Buying IBM could be a mistake, says Warren Buffett (BRK.A, BRK.B), but he hasn't sold a share and continues to expect it to be worth more in the future (though "Charlie's neutral").
- On another troubled holding, American Express (NYSE:AXP), Buffett says it's a business that has always had to adapt, and now is no different. "It's a very strong brand, but you are going to face a lot of competition on payments."
- On yet another roughed-up name, Bank of America (NYSE:BAC), The Oracle says CEO Brian Moynihan has done a great job after inheriting a bad hand.
- Buffett is unlikely to be an owner of Dow Chemical's (NYSE:DOW) common stock, and likes the preferred more. He owns $3B of preferred from 2009 that pay an 8.5% annual dividend. Converting would amount to about 6% of the common float.
- Of troubled names in general, Buffett reminds Berkshire Hathaway's stock price has dipped 50% three different times since he began controlling it. "It was terrific!" A stock going down is a good thing, unless the company itself is losing value.
- Live blog of CNBC interview
Sun, Feb. 28, 7:26 AM
- Thoughts about the future of the U.S. economy
- "For 240 years it’s been a terrible mistake to bet against America, and now is no time to start...America's golden goose of commerce and innovation will continue to lay more and larger eggs."
- "At much of corporate America, truly major gains in productivity are possible," but those in "recent years have largely benefited the wealthy. The solution...is a variety of safety nets aimed at providing a decent life for those who are willing to work but find their specific talents judged of small value because of market forces."
- Defended ties to 3G capital, Clayton Homes
- "Our Heinz partnership...more than doubled its size last year by merging with Kraft. Their actions significantly boost productivity, the all-important factor in America's economic growth."
- "Kevin Clayton has again delivered an industry-leading performance at Clayton Homes, the second-largest home builder in America."
- Revisted Berkshire's biggest takeover
- Precision Castparts, a business that we purchased a month ago for more than $32B of cash, fits perfectly into the Berkshire model and will substantially increase our normalized per-share earning power."
- "With the PCC acquisition, Berkshire will own 10.25 companies that would populate the Fortune 500 if they were stand-alone businesses...That leaves just under 98% of America's business giants that have yet to call us. Operators are standing by."
- Missing topics
- Buffett did not identify his successor, a vital question among investors and market watchers.
- He also didn't go into great detail about the slump in commodity prices - nor the volatility in the markets - except to say how they could affect volumes at BNSF Railway and Berkshire's industrial products manufacturers.
- Read the letter here
Sat, Feb. 27, 2:30 PM
- Berkshire Hathaway (BRK.A, BRK.B): Q4 operating profit per Class A share of $2,843 vs. $2,412 in Q414.
- Operating profit rose 17.9% Y/Y to $4.67B.
- Net earnings climbed 31.8% Y/Y to $5.48B, or $3,333 per Class A share.
- Book value per Class A share rose to $155,501 (+6.4% since year-end 2014).
- Press Release
Fri, Feb. 26, 2:49 AM
- Warren Buffett will release his annual letter to Berkshire Hathaway (BRK.A, BRK.B) shareholders this weekend following another lackluster year that saw the conglomerate's stock price lag the broader market.
- "His underperformance is getting conspicuous. He must address it," said Doug Kass, head of Seabreeze Investment Partners.
- Another lingering question: Who will take over in coming years, given Buffett is 85, and second-in-command Charlie Munger is 92.
- Previously: Buffett faces worst stock market year since 2009 (Dec. 30 2015)
Fri, Feb. 19, 5:57 PM
- Berkshire Hathaway (BRK.A, BRK.B) retains its AA credit ratings with a stable outlook, after being placed on review last August for a possible downgrade on concern about the decision to deploy a large amount of cash toward the $32B acquisition of Precision Castparts (BATS:PCP).
- S&P says the Precision Castparts takeover had a neutral effect on BRK’s AA credit rating, and that now analyzes Buffett's entity as a "corporate conglomerate" rather than as an "insurance holding company," reflecting the growing importance of its non-insurance businesses.
- BRK has “a strong business risk profile, modest financial risk profile, and highly diversified profile as a conglomerate operating in multiple business segments with relatively low correlation," S&P says.
- S&P also affirmed BRK's A-1+ short-term credit ratings, the highest possible, as well as several ratings for BRK's insurance units, and raised its ratings for BRK's BNSF railroad unit.
Wed, Feb. 17, 12:34 PM
- The Warren Buffett effect is sending Kinder Morgan (KMI +10.9%) soaring after Berkshire Hathaway (BRK.A, BRK.B) disclosed a new 26.5M-share purchase during Q4, even though that's not a major investment for Buffett - and the Oracle may not have made the purchase at all.
- Barron's Andrew Bary believes the purchase probably was taken by either Todd Combs or Ted Weschler rather than Buffett himself; Berkshire does not disclose which manager buys which stocks, but smaller holdings generally are initiated by Combs or Weschler, who each run ~$7B of the equity portfolio, while Buffett oversees more than $100B.
- Bary also notes that KMI emphasizes distributable cash flow, while Buffett prefers to focus on free cash flow - "something Kinder Morgan doesn’t have a lot of... [KMI] has sizable capital expenditures beyond just the 'sustaining' capital expenditures included in its DCF calculation. As a result, it is not left with much free cash flow."
- Even if Buffett did take the position, Bary says he has not had a good investment record in recent years, and Berkshire may have a loss in KMI if it bought its entire position in Q4, as it fell sharply when the company cut its dividend by 75% in December.
Tue, Feb. 16, 4:27 PM
Berkshire Hathaway, Inc. engages in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing and services. Its insurance and reinsurance business activities are conducted through... More
Industry: Property & Casualty Insurance
Country: United States
Other News & PR