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Just Burlington Is Worth $200 Billion - Berkshire Hathaway Undervalued By 40%

Oct. 02, 2020 12:12 AM ETBerkshire Hathaway Inc. (BRK.A), BRK.B361 Comments
Sven Carlin profile picture
Sven Carlin


  • A fair market value for Burlington would be $200 billion given what other railroad stocks are trading for. Similarly, BHE is worth at least $70 billion.
  • Summing it all up, BRK's market value should be at least $845 billion and perhaps even more thanks to its quality.
  • Low debt levels with a business where the focus is not on buybacks for short-term gains, but on compounding earnings, should actually give BRK a higher than average market valuation.
  • I have added a video discussion at the bottom of this article for those who prefer watching or listening.

I recently did a full sector analysis of railroad stocks and to do a proper comparative analysis, I also looked at the numbers from Berkshire’s (NYSE:BRK.A) (NYSE:BRK.B) Burlington Northern Santa Fe railroad.

Burlington Santa FE – Acquired by Berkshire in 2009 – Source: BNSF 2019 Report

Two things stunned me:

  • The fact that BNSF has a debt to assets ratio of 48% and debt to free cash flow is 3.5. Both much lower than the sector average debt to assets ratio of 60% and debt to free cash flow of 6.
  • The fact that given BNSF’s quality and low debt, the market would likely price it similar to other quality railroad stocks with a 3% free cash flow yield, if not lower. Thus, BNSF’s market capitalization could easily be $200 billion if it were a public standalone company. Just BNSF would make 40% of Berkshire’s market capitalization. Buffett really did make a great investment when buying BNSF in 2009.

Railroad stocks comparison – Source: Compiled by author

The debt structure is typical for Buffett where by being the lowest indebted in the sector, he is sure he will be the survivor in case of a crisis. This allows him to compound for eternity which is what made him one of the best, if not the best investor over the last 7 decades. The low debt levels are likely a headwind in the short term for BRK stock because he is not following the Wall Street mania of chasing short-term benefits like all other railroads are doing by forcing buybacks and pushing their stock prices higher like there is no tomorrow. As history has taught us over and over again, Buffett’s way is the only way for long-term investing success.

In this article, I make a sum of parts valuation of

This article was written by

Sven Carlin profile picture
Passionate about value investing! Education: PhD - A Real Value Risk Estimation Model for an Emerging Market Experience: Investment manager at Let it grow investments, Netherlands Assistant professor at the University of applied sciences Amsterdam, Netherlands Data researcher at Bloomberg, London UK

Analyst’s Disclosure: I am/we are long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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