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Berkshire Hathaway Earnings: Forward Guidance Likely To Weigh on Shares in Near Term

We are leaving our fair value estimate in place.

Berkshire's corporate headquarters in Omaha, Nebraska

Berkshire Hathaway Stock at a Glance

Fair Value Estimate: $555,000 Class A/$370 Class B

Morningstar Rating: 4 Stars

Morningstar Uncertainty Rating: Low

Morningstar Economic Moat Rating: Wide

Berkshire Hathaway Earnings Update

Having dug deeper into wide-moat Berkshire Hathaway’s first-quarter results, we expect to leave our $555,000 ($370) per Class A (B) share fair value estimate in place.

Operating subsidiary top-line growth of 20.5% (which excludes the impact of investment and derivative gains/losses and other adjustments), was in line with our expectations, which had envisioned the contributions from both Alleghany’s operations (folded in during the fourth quarter of 2022) and the onboarding of Pilot Travel Centers (at the end of January 2023).

Adjusted pretax operating earnings of $9.5 billion, which were up 17.2% year over year, came in a little lower than we were expecting and set the stage for Berkshire’s announcement that operating earnings are likely to be down the rest of the year.

We’ll take a closer look at our full-year forecast once financial statements from BNSF and Berkshire Hathaway Energy come out Monday, but we do already have operating earnings declining low-double digits during 2023 (noting, though, that we had Geico performing far worse, and some other segments performing far better, than they did during the first quarter). The question now is how investors will react to management’s guidance when the markets open up Monday morning.

On a positive note, Berkshire not only put capital to work in stocks (investing $2.9 billion net of sales) and acquisitions ($7.6 billion net of cash acquired) but also acquired $4.4 billion worth of its own common stock during the first quarter. This was above the $3.7 billion average quarterly run rate we’ve seen for share repurchases since the start of the third quarter of 2018, and the $2.0 billion in share repurchase seen on average quarterly during 2022.

Given the defensive nature of Berkshire’s stock, we would expect to see more share repurchases going forward when the market is in more bullish territory, and less when markets are bearish and there are better opportunities for the company to put money to work.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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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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