Unrealized Gains and Operating Results Lift Berkshire

We expect to raise our fair value estimate for wide-moat-rated Berkshire Hathaway BRK.B (in the neighborhood of 5%-10%) following a stronger conclusion to the company's fiscal year than we had been projecting. Fourth-quarter (full-year) revenue, which includes unrealized and realized gains/losses from Berkshire's investments and derivatives portfolios, increased 7.3% (declined 12.5%) year over year to $103.7 billion ($286.3 billion). Excluding the impact of investment and derivative gains/losses and other adjustments, fourth-quarter (full-year) operating revenue declined 1.3% (3.4%) to $64.4 billion ($245.4 billion). Operating earnings, exclusive of the impact of investment and derivative gains/losses but including goodwill and intangible asset impairments (including $9.8 billion attributable to Berkshire's 2016 acquisition of Precision Castparts), increased 13.6% (declined 8.6%) year over year to $5.0 billion ($21.9 billion) during the December quarter (full year). When including the impact of the investment and derivative gains/losses, net earnings increased 23.8% (fell 47.6%) to $35.8 billion ($42.5 billion).

Berkshire closed out the December quarter with $138.3 billion in cash, down from a record $146.6 billion at the end of June 2020, with Berkshire (by our estimates) having around $120 billion in dry powder that could be committed to investments, acquisitions, and share repurchases in the first quarter of 2021. The firm repurchased $8.8 billion worth of its common stock during the fourth quarter, bringing full-year share repurchases up to $24.7 billion (which eliminated around 5% of the company's shares outstanding last year). While we expect Berkshire to continue to buy back shares, we're not sure that the firm will be buying back $9 billion a quarter (as it did during the back half of 2020) but with cash continuing to build up on the balance sheet, share repurchases may end up being the company's best capital allocation outlet.

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