Berkshire Hathaway Earnings: Forward Guidance Likely To Weigh on Shares in Near Term

Berkshire Hathaway Stock at a Glance

Fair Value Estimate: $555,000 Class A/$370 Class B

Morningstar Rating: 4 Stars

Morningstar Uncertainty Rating: Low

Morningstar Economic Moat Rating: Wide

Berkshire Hathaway Earnings Update

Having dug deeper into wide-moat Berkshire Hathaway’s first-quarter results, we expect to leave our $555,000 ($370) per Class A (B) share fair value estimate in place.

Operating subsidiary top-line growth of 20.5% (which excludes the impact of investment and derivative gains/losses and other adjustments), was in line with our expectations, which had envisioned the contributions from both Alleghany’s operations (folded in during the fourth quarter of 2022) and the onboarding of Pilot Travel Centers (at the end of January 2023).

Adjusted pretax operating earnings of $9.5 billion, which were up 17.2% year over year, came in a little lower than we were expecting and set the stage for Berkshire’s announcement that operating earnings are likely to be down the rest of the year.

We’ll take a closer look at our full-year forecast once financial statements from BNSF and Berkshire Hathaway Energy come out Monday, but we do already have operating earnings declining low-double digits during 2023 (noting, though, that we had Geico performing far worse, and some other segments performing far better, than they did during the first quarter). The question now is how investors will react to management’s guidance when the markets open up Monday morning.

On a positive note, Berkshire not only put capital to work in stocks (investing $2.9 billion net of sales) and acquisitions ($7.6 billion net of cash acquired) but also acquired $4.4 billion worth of its own common stock during the first quarter. This was above the $3.7 billion average quarterly run rate we’ve seen for share repurchases since the start of the third quarter of 2018, and the $2.0 billion in share repurchase seen on average quarterly during 2022.

Given the defensive nature of Berkshire’s stock, we would expect to see more share repurchases going forward when the market is in more bullish territory, and less when markets are bearish and there are better opportunities for the company to put money to work.