BERKSHIRE Stock Analysis

Berkshire Hathaway is the famous US conglomerate founded by Warren Buffet. Although more commonly known as a stock investment firm, Berkshire Hathaway also owns and operates various businesses. Afterall, it was Berkshire's insurance float that funded their investments. As much of Berkshire Hathaway's investment success can be attributed to both Warren Buffet an Charlie Munger, both now in their 90s, It is essential to evaluate Berkshire Hathaway as an operating business first, then taking into account its stock investments, which also produces retained earnings and/or dividends.

Berkshire Hathaway's three main operating businesses or giants comprise of (1) Berkshire Insurance Business, (2) Burlington Northern and Santa Fe (BNSF), which operates the largest railway network in North America, and (3) Berkshire Hathaway Energy (BHE). Berkshire also owns dozens of many smaller businesses across three main industries, (1) service, (2) retail, and (3) manufacturing.

Berkshire Hathaway's stock holdings is 327B, of which the top 4 stocks made up of around 70% of the value, namely (1) Apple INC, (2) Bank of American Corp, (3) American Express Company, and (4) The Coca Cola Company.

QUANTITATIVE ANALYSIS

For Berkshire Hathaway's sustainable earnings, in view of potential US recession, 80% of the earnings and 60% of the stock value will be projected. In addition, to keep things simple, we will assume no growth. No additional margin of safety will be added due the previous conservative estimates.

​Enterprise Value: Market Cap (@$52.36) + Debt - Cash Equivalent - Equity	​(1,301,126,370*295.11)+(599,924*442,800) + (42.64B+76.44) - (26.53+74.80+4.07) - 327.7B = $343.74B
​Sustainable Earnings (TTM): Earnings Before Tax*(1-Tax Rate)	​(11.2B+8.4B+7.3+7.2B)*(1-0.22) = $26.6B
​Earnings Power Value: Sustainable Earnings/Expected Rate of Return - Debt + Cash Equivalents + Equity	​(26.6*0.8)/0.1 - (42.64B+76.44) + (26.53+74.80+4.07) + (327.7B*0.6) = $395.7B
​Fair Price: Earnings Power Value/Number of Shares	395.7B/(1,301,126,370+599,924*1500) = $180

Comments:

(1) At 10% expected rate of return, it takes 10 years to "break even".

QUALITATIVE ANALYSIS

Strength: Berskhire owns durable and sustainable businesses and stocks that will continue to operate and make profits for the long term.

Weakness: Berkshire's main profits comes from investing and financing activities rather than its operating businesses, which will decline once Warren Buffet and Charlie Munger step down.

Threats: The biggest threat would be a general recession and slowdown of the american economy.

Opportunity: Berkshire has strong finances to take advantage of a weakened stock market and as US turns inwards to strengthening its economy, Berkshire's infrastructure businesses will benefit.

OVERALL ASSESSMENT

Berkshire has strong track record and leadership over decades and have consistently increase its value. At the right price, Berkshire will continue to deliver value over the long term.

*Disclaimer: All views represented are personal and do not constitute as financial advise