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Does Berkshire Hathaway (BRK.B) Have a Buy Opportunity on the Horizon?

Berkshire Hathaway (BRK.B) possesses an extensive and diversified portfolio that exceeds the combined assets of several tech giants. Moreover, the company has delivered robust second-quarter earnings. Does this hint at a forthcoming buy opportunity for BRK.B? Let's find out...

Warren Buffett's renowned conglomerate, Berkshire Hathaway Inc. (BRK.B), commands a vast portfolio spanning numerous industries, from insurance and energy to railroads, real estate, manufacturing, and retail. The latest earnings report for the second quarter disclosed assets totaling a substantial $1.04 trillion as of June's end.

This staggering amount surpasses, Inc.’s (AMZN) and Apple Inc.’s (AAPL) asset bases combined by more than double and triple, respectively. Moreover, it eclipses the combined assets of Microsoft Corporation (MSFT), Meta Platforms, Inc. (META), and Alphabet Inc. (GOOGL).

Additionally, the revered "Oracle of Omaha" disclosed a robust uptick in second-quarter operating earnings. These earnings, spanning the diverse spectrum of the company’s businesses, such as insurance, railroads, and utilities, reached $10.043 billion in the last quarter, marking a 6.6% year-over-year increase.

BRK.B also witnessed an impressive turnaround in its net income fueled by substantial growth in the company’s insurance underwriting and investment income. Shares of BRK.B have gained 11.2% over the past six months and 22.5% over the past year to close the last trading session at $343.69.

Here is what could shape BRK.B’s performance in the near term:

Solid Financials

For the second quarter that ended June 30, 2023, BRK.B’s total revenue increased 21.4% year-over-year to $92.50 billion. Its net earnings came in at $36.20 billion, compared to a net loss of $43.24 billion in the prior year’s period, whereas net earnings per average equivalent Class B share stood at $16.52, compared to a loss per share of $19.78 in the prior year’s quarter.

In addition, as of June 30, 2023, the company’s cash and cash equivalents amounted to $44.61 billion, compared to $32.26 billion as of December 31, 2022. Also, its total assets came in at $1.04 trillion, up from $948.47 billion as of December 31, 2022

Favorable Analyst Estimates

The consensus revenue estimate of $317.04 billion for the fiscal year ending December 2023 reflects a 5% year-over-year improvement. Likewise, the consensus EPS estimate of $17.81 for the ongoing year exhibits a 27.4% rise from the previous year. Also, the company surpassed the consensus EPS estimates in three of the four trailing quarters.

In addition, analysts expect the company’s revenue and EPS for the next fiscal year ending December 2024 to grow 6.2% and 5.8% from the previous year to $336.53 billion and $18.84, respectively.

Historical Growth Record

Over the past three years, BRK.B’s revenue and EBITDA increased at a CAGR of 10.3% and 31.3%, respectively. Its net income and EPS grew at respective CAGRs of 57.4% and 63.1%. In addition, the company’s total assets and levered free cash flow rose at a CAGR of 9.7% and 36.9%, respectively.

High Profitability

BRK.B’s trailing-12-month EBITDA margin of 36.58% is 83.1% higher than the industry average of 19.98%. Also, the stock’s trailing-12-month levered FCF margin and CAPEX/Sales of 22.03% and 5.11% are 50.3% and 155.1% higher than the industry averages of 14.65% and 2.01%, respectively.

Discounted Valuation

In terms of trailing-12-month PEG, BRK.B is trading at 0.01x, 96.3% lower than the industry average of 0.37x. Its trailing-12-month EV/Sales of 2.22x is 19.7% lower than the 2.76x industry average. Moreover, BRK.B’s trailing-12-month EV/EBITDA of 6.07x is 48.9% lower than the 11.88x industry average.

POWR Ratings Reflect Solid Prospects

BRK.B’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BRK.B has a B grade for Growth, justified by its solid past growth record. Also, the stock has a B for Sentiment, consistent with its favorable estimates.

BRK.B is ranked #21 in the 55-stock B-rated Insurance - Property & Casualty industry. Click here to access BRK.B’s Value, Momentum, Stability, and Quality ratings.

Bottom Line

With a diverse portfolio spanning multiple industries and substantial assets, BRK.B outpaces even the giants like AMZN and AAPL combined. Furthermore, the company robustly performed in its second quarter, marked by a substantial stock portfolio, noteworthy operating earnings growth, and a remarkable net income reversal.

Coupled with its strong profitability, discounted valuation, and solid track record of growth, BRK.B presents an attractive buy opportunity at present.

How Does Berkshire Hathaway Inc. (BRK.B) Stack Up Against Its Peers?

While BRK.B has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Insurance - Property & Casualty industry: Fairfax Financial Holdings Limited (FRFHF), MS&AD Insurance Group Holdings, Inc. (MSADY) and Old Republic International Corporation (ORI) with an A (Strong Buy) and B (Buy) ratings. For exploring more A-rated and B-rated Home Insurance - Property & Casualty stocks, click here.

What To Do Next?

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BRK.B shares were trading at $344.13 per share on Thursday afternoon, up $0.44 (+0.13%). Year-to-date, BRK.B has gained 11.40%, versus a 12.12% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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