Berkshire Hathaway CEO Warren Buffett.
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Berkshire Hathaway
has never been in better shape. Its stock looks appealing after pulling back more than 15% from its record high in March.
The conglomerate’s operating profits were up 22% in the second quarter, excluding foreign-exchange gains, powered by a 56% gain in investment income. Berkshire’s (ticker: BRK.A) annual operating income is running at more than $30 billion after taxes.
CEO Warren Buffett’s equity purchases this year, including
Chevron
(CVX), are contributing to increased dividend income, and higher short rates are lifting interest income on Berkshire’s $105 billion of cash and equivalents.
The Class A shares, at about $448,000, trade for 1.3 times estimated Sept. 30 book value, against an average of 1.4 times in recent years. The price/earnings multiple, at 22 times this year’s projected earnings, also looks attractive, given the company’s financial strength and defensive attributes.
Most of the handful of Wall Street analysts covering Berkshire are neutral on the stock, but they may be giving Buffett insufficient credit. Morningstar analyst Greggory Warren calls the company “modestly undervalued,” citing the wide moat around its businesses. He has a price target on the Class A shares of $535,000.
Buffett, who turns 92 later in August, continues to look for what he calls an elephant-size acquisition. Some think it could be
Occidental Petroleum
(OXY), in which Berkshire already holds a 20% stake. Buying Oxy could cost Berkshire an additional $60 billion, doable given its balance sheet.
Many Berkshire holders would like to see Buffett get more aggressive on stock buybacks. Berkshire repurchased just $1 billion of stock in the second quarter, down from $3.2 billion in the first quarter and an average of about $7 billion a quarter in 2021.
Write to Andrew Bary at andrew.bary@barrons.com
