My updated estimate of Berkshire Hathaway's intrinsic value

Today, I'm finishing my series on Berkshire Hathaway (BRK-B)...

On Saturday, the company released its fourth-quarter (and year-end) earnings report and CEO Warren Buffett's annual letter.

If you missed them, you can see the entire annual letter and report here and the press release here. (And if you haven't already, I strongly encourage you to read Buffett's beautiful eulogy for the late Charlie Munger at the beginning of the annual report.)

Here in my daily e-mails this week, I discussed Buffett's annual letter on Monday and Tuesday and the earnings report yesterday. So today, to wrap up, I'll share my updated estimate of Berkshire's intrinsic value...

For many years, I've been calling Berkshire "America's No. 1 Retirement Stock" because it offers a unique combination of safety, growth, and undervaluation.

While the undervaluation isn't as great as it has been at certain times in the past (as I'll discuss below), I still think the stock should be the bedrock of any conservative portfolio.

I've used a consistent method to estimate Berkshire's intrinsic value for the past two decades, which I believe is similar to the one Buffett uses: take the cash and investments per share and add the value of the operating businesses.

At the end of 2023, cash and investments were about $398,000 per A-share. Since then, Berkshire's stock portfolio has risen by about $11,000 per share, so that's about $409,000 today.

Berkshire's pretax operating earnings in 2023 were about $22,000 per share. (I adjust for volatile insurance and investment income by subtracting it and then adding back half of the average over the past two years, which is $6.5 billion of pretax earnings. I think this is conservative, given that Berkshire's total insurance and investment income has averaged $7.6 billion annually over the past 10 years.)

The chart below shows how the two drivers of Berkshire's value – investments and earnings – have done since 2002. As you can see, there are occasional dips... but overall, these show an extraordinary record of consistent growth:

I apply a conservative below-market multiple of 11 times to Berkshire's pretax operating earnings per share of $22,000 to arrive at a value of $242,000 per share.

Thus, my estimate of Berkshire's intrinsic value is $409,000 (investments) plus $242,000 (operating businesses), for a total of roughly $651,000 per A-share or $434 per B-share.

This table shows this calculation for each year-end starting in 2002:

The A-shares closed yesterday at $621,055, meaning that the stock is currently trading at a roughly 5% discount to my estimate of its intrinsic value.

That's close to the smallest discount since the stock hit its prior all-time high in March 2022.

I believe a better time to buy Berkshire is when the discount is more than 10%.

That was as recently as December 1, when my colleagues and I recommended the B-shares (at a 14% discount to intrinsic value) in that month's issue of Stansberry's Investment Advisory.

Since then, subscribers who followed our advice are up 14% versus an 11% gain for the S&P 500 Index.

For our full breakdown on Berkshire, subscribers can read the full Investment Advisory issue right here.

And if you aren't a subscriber, you can find out how to gain instant access to it – plus our entire archive and portfolio of open recommendations – by signing up for the Investment Advisory today.

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So to wrap up...

I would say Berkshire is more of a "comfortable hold" than a "strong buy" today. But I still like it because it remains somewhat undervalued, is incredibly safe, and its intrinsic value is growing nicely.

That said, it's important to have reasonable expectations...

Given its moderate undervaluation today, I think over the next five years, Berkshire's stock is likely to do perhaps two percentage points (compounded annually) better than the S&P 500. In other words, if the S&P 500 compounds at 5%, I would expect Berkshire to do 7%.

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.