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Stock Analyst Update

Berkshire Buys Back Shares and Adds to Equity Portfolio

The wide-moat company is putting its capital to work, but we believe it will take more for Berkshire to push its cash balance below the $150-billion threshold.

Wide-moat rated Berkshire Hathaway (BRK.B) has started putting money to work more strategically the past few months. Following up on the repurchase of $5.1 billion of its own shares in May and June, it looks like Berkshire may have bought back another $2.4 billion worth of stock in July (based on reported shares outstanding in the company's 10-Q filing at the end of June and shares outstanding as of July 30, 2020). The insurer also committed $4 billion in early July to the acquisition of nearly all of Dominion Energy's natural gas transmission and storage operations, and announced this week that over the past 12 months it had purchased 5% stakes in each of five leading Japanese trading companies--Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo--which are currently worth around $6 billion.

As you may recall from our previous commentary on the firm, Berkshire continues to have a cash problem--closing out the June quarter with a record $146.6 billion in cash and equivalents ($121 billion of which we considered to be dry powder available for acquisitions, investments, and share repurchases). While it is good to see the company finally putting some capital to work (especially on the share repurchase front) it will take more than what we've seen to date for Berkshire to push its cash balance well below the $150-billion threshold CEO Warren Buffett has claimed would be difficult for him to defend to shareholders--especially with the firm likely to continue generating around $5 billion in free cash flow quarterly. As these deals are more likely to be filling gaps that have been created by stock sales and economic setbacks in some of Berkshire's operating subsidiaries, they're unlikely to have a meaningful impact on our fair value estimate.

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Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.