On 11/7, Berkshire Hathaway reported Q3. Operating earnings rose slightly to $6.7b from $6.3b in Q2. As expected operating companies were hit by the economic slowdown. Key takeaways are as follows:
- Buffett increased share buybacks to $9b, which is more than he has ever bought, bringing the total buyback for the year to $16b.
- Cash on books remained steady at $147B.
- Cash and investment portfolio represent 70% of the company’s value.
- Sum of the parts valuation shows 20% upside
Current Price: $231 Price Target: $280 (raised from $260)
Position Size: 2.7% TTM Performance: 5.2%
Segment highlights from the quarter:
- Insurance pretax earnings were down sharply (-70%)
- Geico reported a -27% drop in pretax earnings due to program to give consumers premium credit due to the pandemic
- Railroads – pretax profits rose 18% rebounding from last quarter
- Berkshire energy – pretax profits up strongly due as MidAmerican benefitted from wind energy and tax credits
- Service and retail – Profits rebounded up 93%
- Manufacturing – Profits rebounded up 60%
Stock portfolio highlights:
- Increased Apple holdings. Apple has grown to 45% of the portfolio
- Latest filing show the follow changes:
- Added Merck, Pfizer T-Mobile and AbbVie
- Exits Costco
- Continues to sell Wells Fargo
Valuation: Berkshire is selling at a 20% discount to intrinsic value using sum of the parts. Their cash of $146b represents $60 per share for B shares.
Berkshire remains a core holding, is currently undervalued and is defensively positioned to take advantage of opportunities as they arise.
Please let me know if you have any questions.
Thanks,
John
($brk/b.us)
John R. Ingram CFA
Chief Investment Officer
Partner
Direct: 617.226.0021
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109