Warren Buffett, CEO of Berkshire Hathaway
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Berkshire Hathaway
‘s stock buybacks and stock market activity, along with earnings, will be a focus of investors when the company reports third-quarter financial results on Saturday.
Berkshire’s operating earnings are expected to rise 32%, to $3.03 a share, from the year-earlier period, based on the company’s more liquid class B stock, reflecting higher profits at the conglomerate’s big railroad business—Burlington Northern Santa Fe—and its diversified manufacturing and industrial operations. This estimate is from FactSet. Last year’s results were depressed by the pandemic.
The earnings report is normally posted on Berkshire’s website at 8 a.m. Eastern time. CEO Warren Buffett prefers a Saturday release to give investors a chance to digest results before Monday’s trading.
Berkshire’s earnings are tough to predict given the company’s scale, and only a handful of analysts have estimates. Buffett advises investors to look at Berkshire’s earnings over longer periods and not to focus too much on a single quarter.
Investors will be eager to see Berkshire’s stock repurchases in the quarter as a read on how Buffett views the shares.
Berkshire (ticker: BRK.A and BRK.B) ramped up its stock repurchases in the second half of 2020, and the trend continued into the first half of 2021. The company bought back $6 billion of stock in the second quarter following about $6.6 billion in the first quarter. Berkshire’s buybacks this year have been at annual rate of 4% of the shares outstanding with Berkshire valued at around $650 billion.
Barron’s estimates about $1.8 billion of stock buybacks from June 30 until late July (based on the share count in the second-quarter 10-Q). That would be consistent with about $6 billion of buybacks for the entire third quarter.
The buybacks have been the major use of Berkshire’s cash. Berkshire doesn’t pay a dividend and likely won’t do so as long as Buffett, 91, is at the helm.
The company’s huge pile of cash and equivalents stood at $144 billion at the end of the second quarter, up from $138 billion at year-end 2020.
Investors also will be interested to see if Buffett has seen any opportunities in the stock market after net equity sales for the past 18 months, including $5 billion in the first half of 2021. Buffett’s inactivity has been a disappointment to many investors. Details about specific investments could come in a separate filing in mid-November.
Berkshire’s only major purchase has been Verizon Communications (VZ), with the company holding a roughly $8 billion stake in the wireless carrier. Verizon has not been a winner, however, as the stock, at $53, is down about 10% from Berkshire’s cost.
Berkshire’s class B shares, which were off 0.2%, to $286.34, on Monday, have risen about 24% so far in 2021, roughly in line with the S&P 500 index. The class A shares were off 0.3%, to $431,500, Monday and have a similar year-to-date gain as the B shares.
Edward Jones analyst James Shanahan estimates that book value stood at about $318,500 per class A share on Sept. 30, up 2% from the second quarter figure. That means Berkshire is trading for about 1.35 times that third-quarter estimate.
Shanahan projects that year-end 2021 book will hit $331,500 a share, reflecting projected operating earnings and gains in Berkshire’s $300 billion-plus equity portfolio led by Apple (AAPL) and Bank of America (BAC). He sees the stock as attractively valued at about 1.3 times projected year-end book value—against an average of about 1.4 times in recent years. He has a Buy rating.
Total third-quarter earnings should be higher than the operating figure, thanks to paper gains in Berkshire’s equity portfolio that flow through the company’s earnings report as required by accounting rules. Buffett regularly tells investors to focus on the operating figure.
Berkshire’s second-quarter operating earnings per share were up 29% from the year-earlier figure.
Write to Andrew Bary at [email protected]
