The Berkshire Hathaway Buyback That Went Under the Radar

Perhaps you’ve never heard of Berkshire Hathaway. If so, you’ve got plenty of company. You’re probably familiar, however, with the name Warren Buffet. As the third richest human being on the planet, well, it’s hard to ignore him. It seems the business magnate, investor and philanthropist rarely puts a foot wrong when it comes to making money. We say rarely because Buffet has run into some challenges in his time and, in a few cases, even ended up saddled with near useless investments. For instance, in 1962, Buffet bought shares in a troubled textile business called Berkshire Hathaway. After a shrewd plot to trick him out of potentially valuable stock, Buffet made a series of errors which left him in control of the company.

The only problem was, it didn’t have any money or any real market value. In the years since, Berkshire Hathaway has become a financial frontrunner. Fortunately for Buffet, those rash investments paid off in the end, even if it took a long time. Just last year, the company repurchased a portfolio of Class B shares for around $200 each. The move didn’t garner much attention though, despite what it suggests about BH’s current value.

Who Should Be Buying Berkshire Hathaway Stock?

BA bought back its Class B shares at prices between $197.30 and $207.17. It implies the company, with Buffet as its CEO, has reason to think the shares’ value will climb higher at some point soon. The surprise is that not many have noticed; the deals haven’t been discussed much and seem to have sparked little interest. It’s not the only Berkshire Hathaway buyback that went under the radar recently either. In February, Berkshire Hathaway Energy, perhaps the most influential of the company’s operating arms, invested a mammoth $293 million in buyback shares. Again, it suggests Warren Buffet and co are expecting something special to impact market value.

Why Berkshire Hathaway Is a Sleeping Giant

The truth is, Berkshire Hathaway Energy has bought back shares in all but one year (2016) since 2015. Throughout the same timeframe, its market value increased from $480 per share to $654. Why is all of this important? Well, the actions of Berkshire Hathaway, taken cumulatively, give us an insight into market value that we don’t usually have. Shares in BH Energy are not available for public trading. When shareholders want to swap and share, they do it as part of private transactions. The most common way for stakeholders to buy or sell shares is by, indirectly, selling them back to Berkshire Hathaway Energy. Luckily for public traders and market watchers, you just need the right figures and a knowledge of what they mean to calculate equity worth. For instance, when BH Energy reported a stock buyback of $293 million, it disclosed the volume of shares as well – 447,712. After a little number wrangling, we’re left with a price of roughly $654 for each of these shares. It implies BH Energy has equity worth a little over $50 billion or about 1.7x book value. This is 17.5x bigger than its revenue in 2017 and 19.5x bigger than that reported in 2018.

The Future Is Pretty for Berkshire Hathaway

To get a sense for how successful Berkshire Hathaway has been since its questionable period in the early sixties, consider its long term scoresheet. We can certainly say its decision to invest in energy was not an attempt at ‘pump and dump’ wealth. It became involved with Berkshire Hathaway Energy (and continues to be involved) because the relationship enables it to spend millions on regulated utility projects with decades long lifespans. It redirects almost all of its revenue into further acquisitions and projects. This company agenda of quick fire, no hesitation reinvestment helps to explain why some of the energy sector’s leading luminaries are still giving BH Energy shares the thumbs up. In finely tuned style, the operating arm’s revenue streams from annual investment deals correspond near flawlessly with its cash flows from operations. And, occasionally, we get a sneak peek into all of this but, particularly, the high regard with which BH shares are viewed and appraised. It’s a handy reminder that, in the world of investment, if it’s not being talked about, it doesn’t necessarily mean it’s not worth talking about.


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