Berkshire Hathaway Inc Is Undervalued By 20%

Berkshire Hathaway Inc

Berkshire Hathaway Inc (NYSE:BRK.B) (NYSE:BRK.B)’s stake in Apple as of August 21 ($125 billion), plus its cash as of June 30 ($147 billion), plus its stock portfolio less Apple as of June 30 ($113 billion) equal $385 billion. Its current market value equals $495 billion.  Subtracting $385 billion (stock portfolio plus cash) = $110 billion.  Adding its insurance float (expected future claims on its insurance policies) of $130 billion (June 30), results in an “enterprise value” of $240 billion for all of its 60+ businesses including the major segments of insurance, BNSF Railroad, and Berkshire Hathaway Energy.




Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues




Q2 2020 hedge fund letters, conferences and more

Berkshire Hathaway Inc’s Market Value

Since Berkshire Hathaway Inc had operating earnings of $24 billion in 2019, all of Berkshire’s businesses are being valued by the market at only 10 times earnings.  Currently, the S&P 500 is being valued at approximately 20 times earnings.  If Berkshire’s businesses were conservatively valued at 15 times operating earnings, then they would have an enterprise value of $360 billion. Subtracting the float of $130 billion would then result in an equity value of $230 billion.  Adding $230 billion (businesses) to $385 billion (stock portfolio plus cash) results in an overall equity valuation of $615 billion. Then Berkshire’s current market valuation of $495 billion represents a 20% discount from my calculation of its intrinsic value, which translates into a Class A share price of approximately $380,000.  Berkshire’s closing price on August 21 was $311,126.

If Berkshire Hathaway Inc’s businesses were valued at 20 times operating earnings approximating the S&P 500, then they would have an enterprise value of $480 billion. Subtracting the float of $130 billion would then result in an equity value of $350 billion. Adding $350 billion (businesses) to $385 billion (stock portfolio plus cash) results in an overall equity valuation of $715 billion. Then Berkshire’s current market valuation of $495 billion represents a 30% discount from this equity valuation which equates to a Class A share price of approximately $445,000.

Stake In Apple

Berkshire Hathaway Inc’s stake in Apple as of August 21 ($125 billion), plus its cash as of June 30 ($147 billion), plus its stock portfolio less Apple as of June 30 ($113 billion) equal $385 billion. Its current market value equals $495 billion.  Subtracting $385 billion (stock portfolio plus cash) = $110 billion.  Adding its insurance float (expected future claims on its insurance policies) of $130 billion (June 30), results in an “enterprise value” of $240 billion for all of its 60+ businesses including the major segments of insurance, BNSF Railroad, and Berkshire Hathaway Energy.

Since Berkshire Hathaway Inc had operating earnings of $24 billion in 2019, all of Berkshire’s businesses are being valued by the market at only 10 times earnings.  Currently, the S&P 500 is being valued at approximately 20 times earnings.  If Berkshire’s businesses were conservatively valued at 15 times operating earnings, then they would have an enterprise value of $360 billion. Subtracting the float of $130 billion would then result in an equity value of $230 billion.  Adding $230 billion (businesses) to $385 billion (stock portfolio plus cash) results in an overall equity valuation of $615 billion. Then Berkshire’s current market valuation of $495 billion represents a 20% discount from my calculation of its intrinsic value, which translates into a Class A share price of approximately $380,000.  Berkshire’s closing price on August 21 was $311,126.

If Berkshire Hathaway Inc’s businesses were valued at 20 times operating earnings approximating the S&P 500, then they would have an enterprise value of $480 billion. Subtracting the float of $130 billion would then result in an equity value of $350 billion. Adding $350 billion (businesses) to $385 billion (stock portfolio plus cash) results in an overall equity valuation of $715 billion. Then Berkshire’s current market valuation of $495 billion represents a 30% discount from this equity valuation which equates to a Class A share price of approximately $445,000.

 

The post Berkshire Hathaway Inc Is Undervalued By 20% appeared first on ValueWalk.