Morningstar

Berkshire Shows Stronger Positioning; We Raise FVE

Here is where our valuations stand with Berkshire's various segments.

Securities In This Article
Berkshire Hathaway Inc Class B
(BRK.B)

We've increased our fair value estimate for wide-moat Berkshire Hathaway BRK.B to $440,000 ($293) per Class A (B) share from $380,000 ($253) after updating our valuation model to reflect changes in the firm's investment portfolio, as well as results from its operating subsidiaries, since our last update. We continue to use a sum-of-the-parts methodology to arrive at our fair value estimate. With Berkshire's book value per share expected to increase at a high-single-digit rate this year and next, our new fair value estimate is equivalent to 1.40 and 1.31 times our estimates for Berkshire's book value per share at the end of 2021 and 2022, respectively, compared with 1.43 (1.41) times trailing calendar year-end book value per share the past five (10) years.

Looking more closely at Berkshire's operating segments, our valuation for the insurance operations increased to $188,100 per Class A share (up from $156,900 previously) due to improved performance of the equity portfolio and better expectations for earned premium growth (of 8.3% annually during 2021-25) and underwriting profitability (expected to average 99.6% annually). As for BNSF, our fair value estimate for the railroad business is $77,400 per Class A share (up from $72,100 previously) based on unit volumes increasing 2.6%, and freight revenues expanding 5.0%, annually on average during 2021-25, with the company's operating ratio falling below 62% by the end of 2025. Our fair value estimate for Berkshire's utilities and energy division also increased to $38,600 per Class A share (up from $36,000 previously) on continued constructive rate-case outcomes for each of the division's U.S. regulated utilities and the addition of Dominion GT&S to its pipeline operations. As for Berkshire's manufacturing, service, and retail division, we estimate it is worth $135,900 per Class A share (up from $115,000 previously), with revenue growing 3.8% on average, and pretax operating margins averaging 8.6%, annually during 2021-25.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

More in Stocks

Consumer Defensives: Despite Angst, Thirsty Investors Have Names to Pursue

Estee Lauder, Kraft Heinz, and Dollar General are our top consumer defensive stocks.
Erin Lash, CFA

Industrials: Many Stocks Overvalued After Q3 Outperformance

Our top stocks in this sector are Chart Industries, Wesco, and CNH Industrial.
Brian Bernard, CFA, CPA

Basic Materials: Despite Index Rise, We See Multiple Long-Term Opportunities

In this sector, our favored stocks are Albemarle, Dow, and FMC.
Andrew Bischof, CFA and Travis Miller

About the Author

Greggory Warren, CFA

Strategist
More from Author

Greggory Warren, CFA, is a strategist, AM Financial Services, for Morningstar*. He covers the traditional US- and Canadian-based traditional asset managers, as well as the alternative asset managers and Berkshire Hathaway. Over the course of his career, Warren has covered not only financial services names but companies from the consumer staples and consumer cyclicals sectors, and been involved in portfolio stock selection and management.

Prior to joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than eight years, covering consumer staples and consumer cyclicals. Before assuming his current role at Morningstar in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered the non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago.

During 2014-19, Warren was selected to participate each year on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

Sponsor Center