What is Berkshire Hathaway Worth?

​Although not popular these days, it used to be investing was all about estimating what something was worth and trying to buy below that value.  This is what we do when we buy houses, cars, or groceries; but for some reason people like buying stocks after they have gone up in price. 
 
I still approach investing the old-fashioned way where you determine what something is worth and only buy at a discount to that value.  One of the benefits to this approach is increased conviction when the markets fall.  If I own stock in a company that I think is worth $100 and the price falls to $75, I do not panic and sell.  In fact, I might even buy more.  But if you own stock in a company that is worth $100, and it trades for $300 it’s very difficult to know when to sell if it starts falling.  Momentum is great on the way up, but it works on the way down as well.
 
Recently I did some valuation work on our largest holding, Berkshire Hathaway and concluded the stock remains undervalued.  Here are the components of my intrinsic value (fair value) estimate for Berkshire:
 
1.Cash and marketable securities $135B
2.Bonds $20.4B
3.Equities $281.2B
4.Equity investments $18.7B.  For accounting purposes, equity investments are 20-50% ownership positions in other companies. Berkshire has the following equity investments:
1.Kraft Heinz 26.6%
2.Pilot Flying J’s Travel Centers 38.6%
3.Berkadia 50%
4.ETT 50%
5.  Valuation adjustment for equities ($50B).  One thing I like to do as part of my intrinsic value estimate is to go through all of Berkshire’s top holdings and determine if any of them are meaningfully over or undervalued and make the necessary adjustment. The value for equities on Berkshire’s year end balance sheet is based on market values at that time.  If you believe stocks always trade at fair value, you should adjust these figures based on today’s market prices instead of market prices at year end.  Instead of using today’s market prices, I adjust them to my own intrinsic value estimates.  For example, at the end of last year I thought Kraft Heinz and Verizon were undervalued and BYD and Apple were overvalued.  Since Buffett’s Apple stake is worth $120B, this is a pretty big deal.  Apple ended the year at $133. I think it’s worth around $95.   
 
6.  Operating companies $315B.  Berkshire owns around 65 companies including Burlington Northern Santa Fe, GEICO, Duracell, Dairy Queen, Lubrizol, Fruit of the Loom, Net Jets, Pampered Chef, Forest River, Benjamin Moore Paint, Shaw Carpet, See’s Candies, to name a few.  Most of these companies have leadership positions in their industries and generate high returns on capital.  I calculated a weighted average P/E ratio based on the major businesses (nothing too scientific) of 17.5 which is well below the multiple of the market today.  This group of businesses has annual earning power of around $18 billion which puts the value at $315B.
 
Add it all up and you get a total value of $720 Billion or $310 per share.          
  
Year-end shares outstanding were 1,557,026 and with some additional share repurchases in January/February, I estimate shares outstanding are now 1,544,570.  Total value / shares outstanding puts the A shares at ~$465,000 and the B shares at ~$310.  Yesterday the stock closed at $245 making the shares 21% undervalued.  I like a 25% discount so I would be a buyer under $233. 
 
 
 
 
 
Disclosure: Long BRKB
 
 
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