Skip to Content
Stock Analyst Update

Investment Gains Offset Operating Results for Berkshire

We are leaving our fair value estimate in place for the wide-moat firm.

Mentioned: ,

As wide-moat Berkshire Hathaway (BRK.A)/(BRK.B) reported second-quarter results that were in line with our expectations, we are leaving our $380,000 ($253) per Class A (B) share fair value estimate in place. Second-quarter (first-half) revenue, which now includes unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, increased 7.4% (29.9%) to $73.6 ($154.6) billion. Excluding the impact of investment and derivative gains/losses and other adjustments, second-quarter (first-half) operating revenue increased 2.1% (2.8%) to $63.5 ($124.0) billion.

Operating earnings, excluding the impact of investment and derivative gains/losses, declined 10.9% (4.0%) year over year to $6.1 ($11.7) billion during the second quarter (first half) of 2019. When including the impact of the investment and derivative gains/losses, Berkshire's operating earnings rose 17.2% (228.6%) to $14.1 ($35.7) billion. Aided by share repurchases that the firm has made over the past year, net earnings per Class A equivalent share rose 17.9% (230.1%) to $8,608 ($21,824) during the second quarter (first half) of 2019.

Book value per share, which still serves as a decent proxy for measuring changes in Berkshire's intrinsic value, increased 4.0% sequentially to $233,977 (from $224,950 at the end of the March quarter), slightly better than our forecast of $233,948. The company closed out the June quarter with a record $122.4 billion in cash and cash equivalents, up from $114.2 billion at the end of March (and $103.2 billion at the end of June 2018).

This left Berkshire with around $98 billion in dry powder that could be committed to investments, acquisitions, share repurchases, and dividends. That said, we were surprised by the lack of share repurchase activity (just $442 million) during the second quarter, with the firm sitting on so much cash and its shares priced as attractively as they were during the first quarter (when Berkshire bought $1.7 billion of common stock).

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Greggory Warren, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.