Berkshire Hathaway (BRK.A) (BRK.B) is the investment holding company headed by Warren Buffett, who is undoubtedly one of the most successful and recognized investors in history. The company has operations in businesses such as insurance and banking, transportation, public services, consumption, industry and energy. That is, it is a widely diversified holding in different businesses and sectors. In this article we will analyze it.
The company reported results above Wall Street’s expectations for the third quarter of 2018. Excluding the impact of investment and derivative gains, as well as other accounting adjustments, Berkshire Hathaway’s operating profits increased by 6.5% during the first 9 months of 2018 compared to the same period in the previous year.
The equity value of the company, which is usually a much analyzed metric for a business as complex and diversified as Berkshire Hathaway, had an increase of 5.1% in the third quarter of 2018 compared to the second quarter of 2018.
Beyond the solid earnings data for the quarter, the most important news was that Berkshire Hathaway is buying back its shares, the company bought about 4.14 million class B shares in the last quarter. The amount of the repurchase was not too high compared to the stock market value of the company, however, the impact in terms of its significance was quite important for the market, generating a bullish indication to prices in the medium term.
When a company generates cash surplus, that is, more money than it needs to retain in the business, the management of the company can decide to distribute that money to the investors. Capital distributions can be made through dividend payments or share buybacks.
The dividend payments are quite simple and direct. The investor receives the dividends in cash in his broker account, and it is very clear what the benefit is for the investor in this case. The repurchases of shares, however, present some restraints. In fact, the repurchasing of shares is often questioned considering that it is a corporate exercise to falsely increase the price of the shares and benefit the executives of the company.
Considering that Berkshire Hathaway is a large and diversified company in several mature industries, business growth rates will surely be quite moderate in the future, and it does not make much sense to expect explosive returns in the short term. However, for investors looking for a solid and long-term quality business, Berkshire Hathaway is an interesting alternative to consider.