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Berkshire Hathaway Inc. (BRK-A)
- Equity
- US
- Financial Services
RISK
RETURN
Key risk factors
Low price volatility
Good trading liquidity
Resilient to price shocks
Key return factors
Greatly overvalued vs peers
Very low or no dividends
Poor growth
Company profileBerkshire Hathaway Inc., through its subsidiaries, engages in the insurance, freight rail transportation, and utility businesses worldwide. It provides property, casualty, life, accident, and health insurance and reinsurance; and operates railroad systems in North America. The company also generates, transmits, stores, and distributes electricity from natural gas, coal, wind, solar, hydroelectric, nuclear, and geothermal sources; operates natural gas distribution and storage facilities, interstate pipelines, liquefied natural gas facilities, and compressor and meter stations; and holds interest in coal mining assets. In addition, the company manufactures boxed chocolates and other confectionery products; specialty chemicals, metal cutting tools, and components for aerospace and power generation applications; flooring products; insulation, roofing, and engineered products; building and engineered components; paints and coatings; and bricks and masonry products, as well as offers manufactured and site-built home construction, and related lending and financial services. Further, it provides recreational vehicles, apparel products, jewelry, and custom picture framing products, as well as alkaline batteries; castings, forgings, fasteners/fastener systems, and aerostructures; and seamless pipes, fittings, downhole casing and tubing, and mill forms. Additionally, the company distributes televisions and information; franchises and services quick service restaurants; distributes electronic components; and offers logistics services, grocery and foodservice distribution services, and professional aviation training and shared aircraft ownership programs. It also retails automobiles; furniture, bedding, and accessories; household appliances, electronics, and computers; jewelry, watches, crystal, china, stemware, flatware, gifts, and collectibles; kitchenware; and motorcycle apparel and equipment. The company was incorporated in 1998 and is headquartered in Omaha, Nebraska.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
12.30
21.90
PEG
1.50
-
P/B
1.60
1.40
P/S
2.40
2.50
P/FCF
28.90
26.50
EV/EBITDA
37.60
-20.60
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. Specifically, the stock is fairly valued on P/E, overvalued on EV/EBITDA, and overpriced on P/FCF.
Performance: Mixed
The stock has been growing steadily in the past six months, adding 16% in total. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 2ppts over past six months and grown 1ppts slower in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Neutral
The average target price is 736372 and suggests 18% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 734820.0. This translates into 18% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 660000.0. This suggests 6% upside potential. Even the most pessimistic analyst believes there will be stock growth.
Profitability: Average
RoE
Berkshire Hathaway Inc. reported a return on equity (RoE) of 13.0% in the last 12 months, up from -4.7% in FY22. The market consensus projects an RoE of 19.1% in FY24, this time above its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 6.9% in the last 12 months, an increase from -2.4% in FY22. The market analysts predict that RoA will be 10.0% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 7.3%, above the peers. The consensus estimate for FY24 for RoCE is 5.0%, again ahead of the peers.
Net margin
EBITDA margin
Historically, BRK-A has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 19.7%, a growth from -9.7% in FY22. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 7.0% in the last 12 months, up from -6.9% in FY22.
RoIC / WACC = 1.7(good value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.7 in the past several years. This ratio implies a good shareholder value creation. Growth: Poor
Revenue
EBITDA
EPS
Free cash flow
BRK-A reported revenue of USD 372 241mn in the last 12 months, down 8% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 23% from FY23 to USD 50 817.15. Market expects EPS to reach USD 28400.3 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA has declined rapidly trend in recent years (strongly negative). Net income has fallen rapidly in recent years (strongly negative). Free cash flow, at the same time, has performed better than EBITDA would suggest, and has been growing slowly. We emphasize the highly volatile dynamics of revenue, EBITDA and EPS.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Moderate
The risk of default is moderate. We note solid return on capital, low margin volatility, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to bleak profitability, and poor working capital management.
Volatility: Low
In normal market circumstances, BRK-A is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. Finally, it may be affected by inherently volatile sector.
Stress-test: Resilient
In highly turbulent market conditions, BRK-A is not overly volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low. At the same time, due to inherently volatile sector, its maximum losses could be low.
Selling difficulty: Low
BRK-A boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually quite stable and is somewhat unfavourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.