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Stock Analyst Update

Losses, Fewer Investment Gains Impact Berkshire's 3Q

We are leaving our $480,000 ($320) per Class A (B) share fair value estimate in place.

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With wide-moat-rated Berkshire Hathaway (BRK.A) (BRK.B) reporting third-quarter (year-to-date) results that were in line with our expectations, we are leaving our $480,000 ($320) per Class A (B) share fair value estimate in place. Third-quarter (year-to-date) revenue, which includes both realized and unrealized gains/losses from Berkshire's investments and derivatives portfolios, declined 20.2% (increased 32.8%) to $75.5 ($242.3) billion from $94.6 ($182.5) billion in the prior year's period(s), on a marked decrease (increase) in investment gains year over year. Excluding the impact of investment and derivative gains/losses and other adjustments, third-quarter (year-to-date) operating revenue increased 12.0% (12.8%) to $70.6 ($204.3) billion.

Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 18.0% (19.3%) year over year to $6.5 ($20.2) billion during the September quarter (first nine months) of 2021, even with the insurance operations posting a net underwriting loss for the third quarter (due to losses incurred from Hurricane Ida and flooding in Europe). When including the impact of the investment and derivative gains/losses, operating earnings decreased 65.7% (increased 650.1%) to $10.3 ($50.1) billion $30.1 ($6.7) billion in the prior year's period(s).

Book value per share (by our estimates) increased 1.7% sequentially to $316,443 (from $311,145 at the end of June), below our forecast of $322,354 (which did not include as much in catastrophe losses as Berkshire incurred during the September quarter). The company closed out the third quarter with $149.2 billion in cash and cash equivalents, up from $138.3 billion at the end of last year, despite buying back $20.2 billion worth of Berkshire's stock during the first nine months of the 2021. By our calculations, Berkshire came into the fourth quarter with around $113 billion in dry powder (excess cash) on hand that could be committed to investments, acquisitions, and share repurchases.

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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.