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Buffett Bags His Elephant

Berkshire’s more than $30 billion acquisition of Precision Castparts is another example of Buffett buying a wonderful business at a fair price, writes Morningstar’s Gregg Warren.

Wide-moat-rated

Much like Berkshire's purchase of BNSF in 2009 and initial stake in Heinz in 2013, both of which were perceived to be situations where the company was overpaying (vis-a-vis Buffett's longstanding reputation as a value investor), this deal signifies the Oracle of Omaha's evolution from buying fair businesses at wonderful prices to buying wonderful businesses at fair prices. We view Precision Castparts as one of the latter; it has historically traded at a significant premium to its peers, but has traded off during the past year as declining demand for oil and gas equipment has affected overall sales. We expect this transaction to have a positive impact on our valuation for Berkshire, which did not use any stock or debt to fund the deal and has been earning next to nothing on its $60 billion-plus cash hoard. We do not, however, expect the full impact on our Berkshire fair value estimate to be greater than 10%.

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About the Author

Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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