Berkshire Hathaway: Intrinsic Value Estimate Exceeds $300 Per Class B Share

Summary

• Estimate investment portfolio has appreciated by just under $30 billion since 3Q.
• Non-insurance operating companies, led by BNSF and BHE, could generate record profits in 2021.
• Berkshire consolidating apparent discount to intrinsic value with large-scale repurchases.

Introduction

With an estimated near $30 billion in investment gains since the end of 3Q, Berkshire's (NYSE:BRK.A)(NYSE:BRK.B) cash and investments should now exceed $400 billion after deducting taxes due on unrealized gains. I estimate that Berkshire's non-insurance operating companies will earn a record $20 billion in 2021 and value them at $336 billion after subtracting holding company debt. As such, I believe Berkshire's intrinsic value is now ~$740 billion ($315 per Class B share), or ~$200 billion greater than the current market capitalization. Adding to this positive dynamic, Berkshire has been repurchasing shares at a substantial clip, further consolidating the apparent value proposition for remaining stakeholders.

Valuation Summary	Estimated Value ($ Billions)
Investments + Cash (Net of deferred taxes)	406.2
Operating Companies (Net of holdco. debt)	335.7
Intrinsic value estimate	741.9
Class B equivalent shares outstanding (billions)	2.34
Intrinsic value per Class B share	$ 316.51

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Investments & Cash

Investments + cash (Estimated)			Value ($ billions)
Domestic equities (incl. KHC)			261.0
OXY Pref.			10.0
BYD Company Limited			5.0
Japan Trading Companies			6.5
Total Pre-tax			282.5
Estimated deferred taxes			(41.2)
Total After-tax			241.2
Cash + T-bills			145.7
Fixed maturity			19.3
Total			406.2

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Equities

Including preferred and foreign holdings, Berkshire equity investments have an estimated current fair market value of $282 billion. Since the end of the 3rd quarter, Berkshire's investment portfolio has appreciated by an estimated near $30 billion. Interestingly, although Berkshire is often characterized as a financial stock, its equity allocation in the technology sector is by far the largest (anchored by the AAPL position) and exceeds its financials company exposure by nearly 2:1.

From Berkshire's equity portfolio, I deduct $41 billion, representing the estimated cash taxes that would come due if Berkshire sold the holdings and realized gains.

Cash

As of

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.