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2nd Quarterly report, FY 2020 for Berkshire-Hathaway Date: Sept 15, 2020
(for BRK quarter ending June 20, 2020)
Percentage change in Sales from year ago quarter___31.6%
Percentage change in Earnings per Share from year ago quarter 89.5%
Is company meeting our target sales & earnings estimates? Yes.
Pre-tax Profit on sales trend? (up, even, down) Q2 up from Q1, but slightly down from 1 yr ago 2nd Qtr (2019)
Return on equity trends? (up, even, down) up in 2019 making it even over the last 5 years
Debt? (up, even, down) even
Current PE is _23.9_______.
Where does it fall in my estimated High/low range of PE's? slightly higher_______
Signature PE =__13 (when removing abnormally high and low PE s from 2018 and 2019) or 20 per Value Line
Club cost basis for this stock is _$123.3_______. Current price is __$218_____________
(from latest valuation)
Current fair value: Morningstar:_$228.__ CFRA $ 983.48__ VL: $215-$265 Manifest I: $275__
My SSG Total Return is 4.2%________Projected Average Return is _____-.4%________
What will drive future growth. From “Business Strategy and Outlook,” by Greggory Warren, CFA, Morningstar Analyst, 08 April 2020. “We think Berkshire Hathaway's decentralized business model, broad business diversification, high cash-generation capabilities, and unmatched balance sheet strength provide opportunities for its subsidiaries that might elude
other firms and offer potential downside protection in a downturn. The company remains a broadly diversified conglomerate, with a collection of moaty businesses operating in industries ranging from property-casualty insurance to railroads, utilities and pipelines, and manufacturing, service, and retailing.”
Additional comments: This is a very challenging company to assess, because of its many businesses and the different ways in which analysts report its sales. However, I believe it is a core MicNova Holding. It makes prudent investments, holds a lot of cash, and has a wide moat, as mentioned above. Because of its large size and lack of dividend, it will not generate high rates of sales and earnings, yet its stock could appreciate considerably. CFRA considers it significantly undervalued.
Value Line, Sept 4, 2020 : “Berkshire Hathaway’s underlying insurance operations are holding up pretty well in a difficult economic environment. Though earnings from operations (excludes capital gains and losses from the investment portfolio) declined during the June period, they remained quite decent on an absolute basis. We attribute this to management’s stringent underwriting standards, along with the company’s overall broad diversification. To wit, during the June quarter, the Insurance division reported an increase in underwriting and investment income results on a year-over-year basis. The Utilities and Energy segment also contributed with a positive showing compared to 2019’s levels. This helped to counteract a sharp decline in the Manufacturing, Service, and Retailing division, along with a moderate decrease in the Railroad segment. The declines in the latter two segments largely reflected the COVID-19 pandemic and the resulting shelter-in-place mandates. The share price has bounced back
Considerably since our June report.”
Morningstar, “Bulls Say, Bears Say,” – unchanged from May 15, 2020:
Bulls Say
OBook value per share, which is a good proxy for
measuring changes in Berkshire's intrinsic value,
increased at an estimated 18.8% CAGR during
1965-2019, compared with a 10.1% return for the
S&P 500 TR Index.
OBerkshire's stock performance has solid as well,
increasing at an 8.5% (13.1%) CAGR during 2015-19
(2010-19), compared with an 11.7% (13.6%) average
annual return for the S&P 500 TR Index.
OAt the end of December 2019, Berkshire had
$129.4 billion in insurance float. The cost of the firm's
float has been negative for much of the past decade.
Bears Say
OGiven the size of its operations, Berkshire's
biggest long-term hurdle will be its ability to
consistently find deals that not only add value but are
large enough to be meaningful.
OAnother big issue facing the firm is the longevity
of chairman and CEO Warren Buffett (who turns 90
at the end of August 2020) and managing partner
Charlie Munger (who turned 96 in January 2020).
OBerkshire's insurance business faces competitive
and highly cyclical markets that occasionally produce
large losses, and several of its noninsurance
operations are economically sensitive and focused
on U.S. markets.
Recommend: Buy More ____, Hold__X_______, Challenge with a better investment___ __, Sell___
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