Even Amid Difficulties, Berkshire Book Value Increases
The firm's fourth-quarter and full-year results were mixed but don't alter our long-term view, fair value estimate, or moat rating.
There was little in wide-moat rated Berkshire Hathaway's (BRK.A) (BRK.B) fourth-quarter and full-year results, which were relatively mixed, that would alter our long-term view of the firm. We do not expect to make any changes to our $255,000 ($170) per Class A (B) share fair value estimate, nor to our moat rating. Fourth-quarter pretax operating earnings increased 26.4% compared with the prior year's period, as investment and derivative gains/losses increased from $1.1 billion in the fourth quarter of 2014 to $2.1 billion in the current year's period. This contributed to a 24.3% increase in pretax operating earnings for the full year. Excluding the impact of the investment and derivative gains/losses (as well as other eliminations and adjustments), the company's pretax operating earnings increased 3.3% during the fourth quarter, with the same measure up 2.8% for the full year.
We remain impressed with Berkshire's ability to continue to increase its book value per Class A equivalent share--which rose 6.4% year over year to $155,501--even when faced with difficulties. In fact, the firm's end-of-year book value per share was higher than our expectations of $154,105, with much of the difference attributed to changes in Berkshire's equity investment portfolio during the fourth quarter. The company closed out 2015 with $61.8 billion in cash on its books, down from $66.3 billion at the end of September, but up from $58.0 billion at the end of 2014. With the company spending $22.4 billion on the Precision Castparts deal at the end of January, and committing another billion dollars to stock purchases (like Phillips 66) since the start of the year, Berkshire should have more than $15 billion in dry powder that can be allocated to deals or share repurchases in the near term. CEO Warren Buffett likes to keep at least $20 billion in cash on hand as a backstop for the insurance business, so that capital must be excluded from any cash deemed usable for investments or buybacks.
Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.