Berkshire Hathaway: Trading At An Estimated 11.6x Earnings With An Intrinsic Value Of $180/Share
Left Shark Investing • 232 Comments
Left Shark Investing • 232 Comments
Aug. 24, 2015, 7:47 PM
- Geico (BRK.A -3.2%, BRK.B -3.4%) will pay $6M to settle insurance discrimination charges first brought up by the Consumer Federation of California against the company.
- Geico was charged with quoting inflated rates to women, low-income and non-professional-level applicants. The company agrees not to consider education and occupation in sorting coverage limits via a three-year settlement.
- The payout could double to $12M if Geico's found to be not in substantial compliance.
Aug. 14, 2015, 6:10 PM
- Along with Warren Buffett cutting stakes in energy (but leaving Berkshire's "Big Four" alone), the latest 13F filing shows a telecom/media changeout as well.
- Berkshire Hathaway (BRK.A, BRK.B) boosted its stake in Charter Communications (NASDAQ:CHTR) -- itself in the process of buying out Time Warner Cable (NYSE:TWC) -- by 42%, to about 8.5M shares ($1.5B worth).
- In the other direction, its stake in Viacom (VIA, VIAB) declined by 32%, to about $250M worth.
- A notation that confidential information has been omitted suggests a secretive stake is being built -- Berkshire used such a notation while building an IBM stake in 2011 -- but confirmation won't come for three months, in mid-November.
- After hours: VIAB +0.8%; CHTR +0.1%.
- 13F filing
Aug. 14, 2015, 5:56 PM
- Berkshire Hathaway (BRK.A, BRK.B) disclosed in its latest 13F filing that it sold off its shares in Phillips 66 (NYSE:PSX) and National Oilwell Varco (NYSE:NOV) during Q2, as it continued to cut its positions in energy companies.
- Meanwhile, BRK kept unchanged its stakes in its “Big Four” holdings American Express (NYSE:AXP), Coca Cola (NYSE:KO), Wells Fargo (NYSE:WFC) and IBM.
- Warren Buffett seemed to hint during a CNBC interview this week that BRK may have built up its IBM stake in the current quarter, saying "I love it when it goes down" when asked whether he was concerned about the stock’s recent performance.
- Buffett’s only new stake in the quarter was a 20M-share investment in auto paint maker Axalta Coating Systems (NYSE:AXTA), which BRK bought from Carlyle Group.
Aug. 11, 2015, 4:12 PM
- Berkshire Hathaway's (BRK.A, BRK.B) AA credit rating along with that of its insurance subsidiaries have been placed on CreditWatch Negative by S&P.
- At issue is uncertainty over how Berkshire's announced $37.2B acquisition (debt included) of Precision Castparts will be funded, and S&P expects The Oracle to use some of the capital resources available at his insurance units, which could affect their ratios.
- S&P will monitor and expects to update or resolve the CreditWatch negative listing within the next 90 days.
- Previously: Buffett pays high price for Precision Castparts (Aug. 10)
Aug. 10, 2015, 5:47 PM
- Effective with its September rebalance, S&P is going to allow some multiple share class lines to be listed separately in its indices, rather than consolidated lines -- meaning that both classes of Comcast (CMCSA, CMCSK) and Twenty-First Century Fox (FOX, FOXA) will be included in the S&P 500 after the close Sept. 18.
- All multiple-class companies that have listed share class lines will be adjusted for share and float per each line. Multiple share class companies that have an unlisted class line will be adjusted as well.
- There are four companies in the S&P 100 with two or more publicly listed lines: Google is already represented by its two lines. Comcast and Fox will have their additional lines added. Berkshire Hathaway (BRK.A, BRK.B) will be an exception due to liquidity concerns, and share count will be consolidated under the B line.
- With the S&P 500, Discovery Communications (DISCA, DISCK) is also already represented by two lines in the index. News Corp. (NWS, NWSA) will have both its share lines listed. The end result is 500 companies in the index, and 505 trading lines.
Aug. 10, 2015, 11:28 AM
- Berkshire Hathaway's (BRK.A -0.7%; BRK.B -0.6%) $37B purchase of Precision Castparts (PCP +19.1%), combined with Berkshire's FQ2 earnings report that showed profit fell 37% due to higher costs at its insurance units, appear to be striking an off note with the company's investors, sending shares lower.
- It's the biggest deal of Warren Buffett's career: BRK is paying $235/share for PCP, a 21.2% premium over Friday's closing price and 18x projected profit over a 12-month period.
- "I'm not crazy about paying $30B for a $1.5B earnings stream of a cyclical company supplying airplane makers," says Jeff Matthews, a principal at hedge fund Ram Partners and author of a book about Buffett.
- Buffett tells CNBC that Berkshire will use $23B of its own cash and borrow ~$10B to fund the deal, which he says will be the last one his firm undertakes for roughly a year as it rebuilds its cash pile.
Aug. 10, 2015, 7:12 AM
- Berkshire Hathaway (BRK.A, BRK.B) confirms it will acquire Precision Castparts (NYSE:PCP) for $235 per share in a transaction valued at $37.2B, inclusive of debt.
- A closing is expected in Q1 of 2016.
- Previously: Berkshire Hathaway nears $30B deal for Precision Castparts (Aug. 09 2015)
Aug. 9, 2015, 7:54 AM
- Berkshire Hathaway (BRK.A, BRK.B) is nearing an agreement to buy Precision Castparts (NYSE:PCP), in what could be the conglomerate's largest acquisition ever.
- Given typical premiums, the price tag for the industrial firm, which had a market value of $26.7B as of Friday's close, could exceed $30B.
- Berkshire already owns 3% of PCP, and is its largest shareholder. A deal may be announced as soon as this week.
Aug. 7, 2015, 5:54 PM
- Rail traffic fell in July from a year ago as an increase in container volumes could not offset a sharp decline in oil and coal shipments, according to the latest monthly report from the Association of American Railroads.
- The number of carloads carrying oil and petroleum products fell 13.6% Y/Y to 67.9K last month, while coal volumes sank 12.5%; container shipments rose 3.8% to 1.2M, and traffic overall fell 1.8% to 2.7M.
- "Railroads are overexposed, relative to the economy in general, to the energy sector,” the AAR says in its traffic report.
- Relevant tickers: CSX, NSC, UNP, KSU, BRK.A, BRK.B
Aug. 7, 2015, 5:14 PM
Aug. 6, 2015, 5:35 PM
Jul. 27, 2015, 6:57 PM
- Some of the biggest and best known U.S. businesses join the Obama administration in trying to build momentum for a deal at the climate change summit in Paris later this year.
- A dozen publicly traded companies - AA, AAPL, MSFT, BAC, BRK.B, KO, GM, GS, GOOG, PEP, UPS and WMT - committed to support a “strong" outcome in Paris, and made new pledges to take a variety of steps to tackle climate change.
- For example, Alcoa says it will reduce absolute greenhouse gas emissions in the U.S. by 50% by 2025, and BRK plans to retire 75% of its coal-fueled generating capacity in Nevada by 2019.
- In addition to company-specific goals, the White House says today's announcements total at least $140B in new low-carbon investment and more than 1,600 MW of new renewable energy.
Jul. 25, 2015, 8:02 AM
- "I'm scratching my head about Berkshire (BRK.A, BRK.B), says Barclays analyst Jay Gelb, who rates the stock an Overweight with a price target 22% higher than the current level. "The earnings power is stronger than ever, the company has done a series of attractive acquisitions, and it just closed on Kraft. None of that is reflected in Berkshire’s valuation.”
- To review: The Oracle invested $4.25B of Berkshire money for a 50% equity stake in the $23B buyout of Heinz two years ago. Berkshire made another $5B equity investment when Kraft purchased Heinz this year, and now has a 25% stake in the new Kraft Heinz (NASDAQ:KHC) worth $25B. It's a $16B gain in two years - a score P-E giants can only dream about, writes Andrew Bary in a bullish front page article in Barron's.
- Berkshire's stock, however, is lower by 6% this year, underperforming the S&P 500 by 700 basis points, and trades at less than 1.5x March 31 book value. The downside here is likely limited, says Bary, thanks to Buffett's promise to aggressively buy back stock at 1.2x book value.
- Succession fears are one obvious reason Berkshire doesn't trade higher, but it also appears as if Buffett's stock-picking skills have eroded. Of Berkshire's four largest holdings - AmEx, Coca-Cola, IBM, and Wells Fargo - only Wells has beaten the S&P 500 over the last three and five years. IBM is worth less than he paid for it in 2011, and Coke still hasn't taken out its 1998 peak. There was also the Tesco boner, which Buffett exited last year. Berkshire has done way better when acquiring whole companies.
- On succession, Bary's bet is with Berkshire Hathaway Energy chief Greg Abel over reinsurance head Ajit Jain. At age 53, Abel is 11 years younger than Jain, has headed a conglomerate, and is comfortable in the public eye.
Jul. 22, 2015, 5:44 PM
- Orders for railroad tank cars during Q2 fell 29% Q/Q and 70% Y/Y, reflecting a broad decline in energy shipments at railroads.
- Carload volume for oil and petroleum products for the week ended July 18 was down 20% from last year and off 2.7% in the first 28 weeks of 2015 from the same period in 2014.
- Kansas City Southern (NYSE:KSU) recently reported a 46% decline in energy shipments, and Canadian Pacific (NYSE:CP) said Q2 revenue from crude oil shipping tumbled 29% Q/Q.
- Other relevant tickers: CSX, NSC, UNP, CNI, BRK.A, BRK.B, GBX, WAB, TRN, ARII, RAIL
Jul. 17, 2015, 11:59 AM
- More than 20 cars on a Burlington Northern Santa Fe (BRK.A, BRK.B) oil train derailed last night in rural Montana, with at least three of them leaking crude and leading some homes to be evacuated.
- There is no estimate yet of how much oil spilled or what caused the cars to derail, but no explosions or fire were reported.
- The train was pulling 106 loaded crude oil cars when it derailed close to Culbertson near the North Dakota border; the cars typically haul ~30K gallons of oil each.
- The derailment came a few hours after rail traffic started moving again following another BNSF derailment further west on Tuesday.
Jul. 9, 2015, 6:08 PM
- MedPro, a malpractice insurer in the portfolio of Berkshire Hathaway (BRK.A, BRK.B), has agreed to buy rival Plico for cash, and is keeping its eye on other targets as well.
- The deal terms were undisclosed, but with a book value of about $60M (it had $30M in premiums and $60M in surplus premiums last year), Plico likely drew $75M to $90M in the deal. It's MedPro's second acquisition since it became part of Warren Buffett's company in 2005.
- The $28B deal between ACE Limited (NYSE:ACE) and Chubb (NYSE:CB) makes a stronger insurance rival for Berkshire's businesses, but not a real threat as there's little overlap between Chubb's mid-market clients and Berkshire's and Geico's bigger targets, says Morningstar's Greggory Warren.
- Meanwhile, the U.S. has fined Forest River, Berkshire's RV-making unit, $5M for delaying two recalls of camper trailers with defects that posed a fire risk.
- Today: BRK.A +0.8%; BRK.B +1.1%; ACE +0.8%; CB +0.7%.
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
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