Berkshire Hathaway trades at a discount to intrinsic
The bull case for Berkshire Hathaway argues that the stock trades at roughly $0.85 on the dollar of its fair value, representing a compelling discount to its true economic worth.
The argument
The speaker calculated Berkshire's intrinsic value at approximately $1.25 trillion ($570 per B-share) using a blended average of four valuation methods. He argued that the market's negative reaction to a reported 7% decline in operating earnings was a misunderstanding, as economic earnings actually grew by over $1 billion once adjusted for currency fluctuations, insurance reserve developments, and goodwill write-downs.
The thesis, stress-tested
✓ What validates it
- ✓Resumption of aggressive share repurchases by Greg Abel
- ✓Improvement in the railroad subsidiary's normalized earning power
- ✓Stabilization or growth of policies in force at GEICO
▸ Risks discussed
- ▸Underearning in the railroad and energy subsidiaries
- ▸A tough reinsurance market with excess capital pressuring pricing
- ▸Potential loss of market share in auto insurance as competitors lower prices
Hear it yourself
"My market cap would be intrinsic value and on a per share basis that went from the b shares a year ago were $5.22. I've got them at $5.70 per share now and the a shares are up to 855,396. So at the current price this morning, the stock's trading at about $0.85 on the dollar of fair value."
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