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Berkshire Earnings: Should Investors Buy Warren Buffett's Stock?
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Warren Buffett’s holding company Berkshire Hathaway (BRK.B - Free Report) reports earnings on Friday, February 23.
Warren Buffett’s sprawling conglomerate owns businesses across the spectrum of industries. While everyone knows him as a brilliant stock picker and portfolio manager, he is also the shepherd of some 70 companies under the Berkshire Hathaway umbrella.
Also reporting earnings on Friday is another well-known, but considerably smaller holding company, Icahn Enterprises (IEP - Free Report) . CEO Carl Icahn is another investing legend and maverick many decades into his Wall Street career.
Image Source: Zacks Investment Research
Business Overview
Berkshire can be broken down into three primary segments. The largest contributor to the top line is Berkshire’s insurance group, which includes GEICO, Berkshire Hathaway Reinsurance Company, and BH Primary Group. While insurance has been a phenomenal business for Buffett, the float insurance companies are required to hold has also been an important vehicle for his numerous investments.
The next largest segment at BRKB is the Manufacturing, Service and Retailing operations, which makes up 36% of revenue. This segment is extremely diversified and includes major manufacturing businesses such as specialty chemical producer Lubrizol Corporation, as well as building operations Clayton Homes and Shaw Industries, which is the largest manufacturer of carpets in the country. Berkshire’s portfolio also includes consumer products Fruit of the Loom, NetJets, Dairy Queen, See’s Candies and an array of other retail and services businesses.
The third segment is the Regulated Utility businesses, which brings in 11% of total revenue. This segment is made up of Burlington Northern Santa Fe (BNSF), which is one of the largest freight railroads in North America, and Berkshire Hathaway Energy, which was originally called Mid-American Energy before being acquired in the late 90s.
This is all in addition to Buffett and Berkshire’s portfolio of public equities, which includes massive stakes in Apple (AAPL - Free Report) , Occidental Petroleum (OXY - Free Report) , Chevron (CVX - Free Report) , Coca-Cola (KO - Free Report) and many others.
Earnings Expectations
Berkshire Hathaway currently sports a Zacks Rank #3 (Hold), indicating that its earnings revisions have remained relatively flat. BRKB has a strong record of beating earnings including a 14% beat last quarter and a 22% average over the trailing four.
Current quarter estimates project sales will grow 4% YoY to $75 billion. Full year sales are expected to be $299 billion, an increase of 8% YoY. Earnings are expected to grow as well, with current quarter EPS forecasted at $3.31 per share, a 1.2% increase YoY. Full year earnings estimates are very strong, expecting EPS to climb 23% to $14.85 per share.
2022 was an exceptional year for Berkshire as its portfolio of real assets, and consumer goods benefitted from the increase in inflation. Furthermore, the uncertainty that higher interest rates brought to the stock market made BRKB a safe haven for investors trying to avoid the volatility of growth stocks. Berkshire outperformed the broad market by 23% last year.
Image Source: Zacks Investment Research
Valuation
Berkshire stock is currently trading at 18x one-year forward earnings, below its 10-year median of 20x, and not far off its low of 15x. Also worth noting in that BRKB has an earnings multiple perfectly in line with the S&P 500 average, which is a testament to how broadly diversified Buffett’s holding company is.
Berkshire offers no dividend and never has. While for some that may be a turnoff, it’s worth considering who would be better to be invest all the free cash flow?
Image Source: Zacks Investment Research
Succession
Buffett is now in his 90s, and a lot of the success experienced by BRKB stock is directly attributed to him, and his partner Charlie Munger. What is going to happen when they do eventually retire or pass away? A succession plan has of course been made, but for now it is still a secret to the public. Can investors expect Berkshire to perform as well as it has without its captain and first mate?
Icahn Enterprises
It is kind of funny how both Berkshire and Icahn enterprises report on the same day. Two of the most enigmatic faces in investing, Carl Icahn and Warren Buffett couldn’t be different in many ways. Icahn, a major player on Wall Street, while Buffett stays primarily in Omaha. Icahn boisterous and feared, while Buffett is more soft-spoken, and revered.
IEP through its subsidiaries, operates in investment, energy, automotive, food packaging, real estate, home fashion, and pharma businesses in the U.S. and internationally. IEP currently has a one-year forward P/E of 73x, and a dividend yield of 14%.
Returns between the two conglomerates are surprisingly similar, although IEP has edged out with better returns than BRKB over the last 25 years, albeit with significantly more volatility.
Image Source: Zacks Investment Research
Conclusion
It is always a big event when Buffett reports earnings for BRKB. Berkshire, because of its broad diversification, can be a useful bellwether for the economy, and the color provided by Buffett is always extremely valuable. It will be interesting to compare the comments from two investing legends who stay at the pinnacle of their investing careers late in life.
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Berkshire Earnings: Should Investors Buy Warren Buffett's Stock?
Warren Buffett’s holding company Berkshire Hathaway (BRK.B - Free Report) reports earnings on Friday, February 23.
Warren Buffett’s sprawling conglomerate owns businesses across the spectrum of industries. While everyone knows him as a brilliant stock picker and portfolio manager, he is also the shepherd of some 70 companies under the Berkshire Hathaway umbrella.
Also reporting earnings on Friday is another well-known, but considerably smaller holding company, Icahn Enterprises (IEP - Free Report) . CEO Carl Icahn is another investing legend and maverick many decades into his Wall Street career.
Image Source: Zacks Investment Research
Business Overview
Berkshire can be broken down into three primary segments. The largest contributor to the top line is Berkshire’s insurance group, which includes GEICO, Berkshire Hathaway Reinsurance Company, and BH Primary Group. While insurance has been a phenomenal business for Buffett, the float insurance companies are required to hold has also been an important vehicle for his numerous investments.
The next largest segment at BRKB is the Manufacturing, Service and Retailing operations, which makes up 36% of revenue. This segment is extremely diversified and includes major manufacturing businesses such as specialty chemical producer Lubrizol Corporation, as well as building operations Clayton Homes and Shaw Industries, which is the largest manufacturer of carpets in the country. Berkshire’s portfolio also includes consumer products Fruit of the Loom, NetJets, Dairy Queen, See’s Candies and an array of other retail and services businesses.
The third segment is the Regulated Utility businesses, which brings in 11% of total revenue. This segment is made up of Burlington Northern Santa Fe (BNSF), which is one of the largest freight railroads in North America, and Berkshire Hathaway Energy, which was originally called Mid-American Energy before being acquired in the late 90s.
This is all in addition to Buffett and Berkshire’s portfolio of public equities, which includes massive stakes in Apple (AAPL - Free Report) , Occidental Petroleum (OXY - Free Report) , Chevron (CVX - Free Report) , Coca-Cola (KO - Free Report) and many others.
Earnings Expectations
Berkshire Hathaway currently sports a Zacks Rank #3 (Hold), indicating that its earnings revisions have remained relatively flat. BRKB has a strong record of beating earnings including a 14% beat last quarter and a 22% average over the trailing four.
Current quarter estimates project sales will grow 4% YoY to $75 billion. Full year sales are expected to be $299 billion, an increase of 8% YoY. Earnings are expected to grow as well, with current quarter EPS forecasted at $3.31 per share, a 1.2% increase YoY. Full year earnings estimates are very strong, expecting EPS to climb 23% to $14.85 per share.
2022 was an exceptional year for Berkshire as its portfolio of real assets, and consumer goods benefitted from the increase in inflation. Furthermore, the uncertainty that higher interest rates brought to the stock market made BRKB a safe haven for investors trying to avoid the volatility of growth stocks. Berkshire outperformed the broad market by 23% last year.
Image Source: Zacks Investment Research
Valuation
Berkshire stock is currently trading at 18x one-year forward earnings, below its 10-year median of 20x, and not far off its low of 15x. Also worth noting in that BRKB has an earnings multiple perfectly in line with the S&P 500 average, which is a testament to how broadly diversified Buffett’s holding company is.
Berkshire offers no dividend and never has. While for some that may be a turnoff, it’s worth considering who would be better to be invest all the free cash flow?
Image Source: Zacks Investment Research
Succession
Buffett is now in his 90s, and a lot of the success experienced by BRKB stock is directly attributed to him, and his partner Charlie Munger. What is going to happen when they do eventually retire or pass away? A succession plan has of course been made, but for now it is still a secret to the public. Can investors expect Berkshire to perform as well as it has without its captain and first mate?
Icahn Enterprises
It is kind of funny how both Berkshire and Icahn enterprises report on the same day. Two of the most enigmatic faces in investing, Carl Icahn and Warren Buffett couldn’t be different in many ways. Icahn, a major player on Wall Street, while Buffett stays primarily in Omaha. Icahn boisterous and feared, while Buffett is more soft-spoken, and revered.
IEP through its subsidiaries, operates in investment, energy, automotive, food packaging, real estate, home fashion, and pharma businesses in the U.S. and internationally. IEP currently has a one-year forward P/E of 73x, and a dividend yield of 14%.
Returns between the two conglomerates are surprisingly similar, although IEP has edged out with better returns than BRKB over the last 25 years, albeit with significantly more volatility.
Image Source: Zacks Investment Research
Conclusion
It is always a big event when Buffett reports earnings for BRKB. Berkshire, because of its broad diversification, can be a useful bellwether for the economy, and the color provided by Buffett is always extremely valuable. It will be interesting to compare the comments from two investing legends who stay at the pinnacle of their investing careers late in life.