Interactive Investor

ii view: Berkshire Hathaway reports record earnings

Does large share price underperformance vs the S&P500 suggest growing investor impatience?

24th February 2020 13:58

Keith Bowman from interactive investor

Does large share price underperformance vs the S&P500 suggest growing investor impatience? 

Fourth-quarter results and full-year results

  • Fourth-quarter operating earnings down 23% to $4.42 billion
  • Full-year earnings attributable to shareholders of $81.4 billion 
  • Cash of $128 billion

ii round-up:

Operating more than 90 businesses, Warren Buffett-run conglomerate Berkshire Hathaway (NYSE:BRK.B) reported record full-year attributable earnings of $81.4 billion, driven by gains across investments in companies such as Apple (NASDAQ:AAPL) and JPMorgan Chase (NYSE:JPM)

Record 2019 earnings comfortably beat the previous 2017 record of $44.94 billion.

Group cash remained at around $128 billion as the company’s legendary founder and investor Warren Buffett struggled to find suitable value enhancing companies to buy. It is now four years since Omaha Nebraska headquartered Berkshire made a major acquisition. 

Earnings or operating profit on a quarterly basis, which excludes gain or losses in investments, fell by 23% to $4.42 billion, led lower by the company’s insurance underwriting business. Catastrophe losses related to Japan’s Typhoon Hagibis and wildfires in California and Australia were responsible.

Operating profits for other businesses such as railroad, utilities and energy gained both on a quarterly and annual basis. 

Mr Buffett will turn 90 later this year, raising shareholder concerns regarding group succession plans. 

ii view:

Led by legendary investor and businessman Warren Buffett, Berkshire Hathaway is tracked and invested in by large and small investors alike. A conglomerate of different businesses and investments acquired under the watchful eye of Mr Buffett, Berkshire as an American company offers investors a near one-stop investment destination.  

For investors, the company’s cash balance provides a clear focus. With $128 billion at its disposal, the company could easily make one or more major acquisitions. It could also provide for significant shareholder returns.

However, an 18% underperformance compared to the S&P 500 index over 2019 may suggest that investors are growing impatient with the company’s inability to find a home for its cash mountain, despite repurchasing $5 billion of its own stock in 2019. Or it may underline other factors such as Buffett's exposure to US China trade tensions. 

Positives: 

  • Diverse portfolio of industries and businesses
  • Chairman Warren Buffett is a legendary investor and businessman 

Negatives:

  • Subject to macro-economic and geopolitical uncertainties
  • Succession risk – who might replace Warren Buffett?

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.