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Warren Buffett, CEO of Berkshire Hathaway.
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How do you do
Berkshire Hathaway
seem cheaper? Look at his profits as does his CEO, Warren Buffett.
Using a financial measure called "net income," which aims to incorporate corporate earnings from Berkshire's broad $ 200 billion equity portfolio into Berkshire's earnings, its shares suddenly seem cheaper, according to a report from Sarah DeWitt, analyst at JPMorgan.
It calculates that Berkshire's projected earnings for 2019 will increase by about 50% to US $ 15.44 per share, based on the transparency calculation, well above its estimated operating profit of US $ 10.25, which is consistent with the current estimate.
His estimates relate to Berkshire Class B Shares (BRK.B), which correspond to 1/1500 of the
A part
(BRK.A). Buffett has often referred to the results of transparent analyzes in his annual letters to shareholders as a good way to analyze the company.
Based on the earnings estimate of 2019, Berkshire is trading for just 13.6 times earnings, compared with about 20 times according to a conventional calculation. Berkshire Class B shares are down $ 1.33, or 0.6%, to $ 208.50 in morning trading on Wednesday. Class A shares range from $ 1,915 to $ 312,834.
"Berkshire is undervalued on its earnings," writes DeWitt. "Berkshire has noted in the past that reported profits were not an adequate measure of economic progress at Berkshire, in part because they included only dividends received from equity securities (included in net investment income), although that these dividends represent only a fraction of the possession. "
Berkshire's largest holdings are
Apple
(AAPL)
Wells Fargo
(WFC),
Bank of America
(BAC) and Coca-Cola (KO). Take Apple as an example. Berkshire includes in its published earnings only the dividends it receives on its stake of 258 million Apple shares, in accordance with accounting rules. These dividends operate at an annual rate of $ 2.92 per share. The net profits would give Berkshire a credit for Apple's profits, which should exceed $ 13 per share in 2019.
DeWitt is overweight and is targeting a target price of $ 250 on Berkshire Class B shares.
She wrote that Berkshire shares, which rose about 5% this year, were held back by the "key risk" associated with Buffett, who turned 88 in August. She wrote that there is already "a massive reduction of the stock for this risk".
Write to Andrew Bary at [email protected]
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