Berkshire Hathaway Bounces Back in First Half

With wide-moat-rated Berkshire Hathaway BRK.A BRK.B reporting stronger second-quarter (first-half) results than we had forecast, we are likely to reassess our $440,000 ($293) per Class A (B) share fair value estimate in the near term. That said, the outcome will be driven by our ability to discern the lasting impacts that the coronavirus pandemic could have on Berkshire's operating subsidiaries, especially with regards to the insurance and manufacturing, service, and retail operations.

Second-quarter (first-half) revenue, which includes unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, declined slightly (increased significantly) to $96.5 ($166.8) billion from negative $96.9 ($87.9) billion in the prior year's period. Excluding the impact of investment and derivative gains/losses and other adjustments, second-quarter (first-half) operating revenue increased 21.6% (13.2%) to $69.1 ($133.7) billion. Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 21.3% (20.0%) year over year to $6.7 ($13.7) billion during the June quarter (first half). When including the impact of the investment and derivative gains/losses, operating earnings increased 6.8% (and quite significantly) to $28.1 ($39.8) billion (from negative $23.4 billion in the prior year's period).

Book value per share (by our estimates) increased 6.5% sequentially to $311,145 (from $292,175 at the end of March), above our forecast of $298,019 on the backs of both strong investment and operating performance. The company closed out the June quarter with $144.1 billion in cash and cash equivalents, up from $138.3 billion at the end of last year, despite buying back $12.6 billion worth of Berkshire's stock during the first six months of the 2021. By our calculations, Berkshire came into the third quarter with $109.0 billion in dry powder (excess cash) on hand that could be committed to investments, acquisitions, and share repurchases.

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