My updated estimate of Berkshire Hathaway's intrinsic value; The bear case for Veeva Systems
1) In yesterday's e-mail, I analyzed the second-quarter earnings of one of my longtime favorite companies, Berkshire Hathaway (BRK-B).
But favorite company doesn't necessarily mean favorite stock – that depends on valuation.
In my May 5, 2026 e-mail, I showed how the stock had significantly underperformed the S&P 500 Index over the previous year, in large part because it had become overvalued:
Since the all-time high closing price of $809,350 per A-share [on May 2, 2025], Berkshire's stock is down 13.2%. Meanwhile, the S&P 500 is up 26.6%...
I'm not surprised by this outcome. I was bullish on the market back then, but I saw that Berkshire, which had doubled over the previous two and a half years, had gotten ahead of itself.
In my May 7 e-mail last year, I calculated that the stock's intrinsic value was only $743,000 per A-share, meaning it was 8.9% overvalued at its peak.
But today, the situation has reversed – making the stock look attractive now...
[It's] trading at a 14.6% discount to my estimate of intrinsic value.
Sure enough, Berkshire is up 13.4% since then – double the S&P 500's 6.8% return.
To calculate my estimate of intrinsic value, I take Berkshire's cash and investments per share and add the value of the operating businesses. (I believe Warren Buffett has long used a similar method.)
At the end of the second quarter, cash and investments were $507,300 per A-share. Thanks to the market's strong performance since then, Berkshire's stock portfolio has gained roughly $26,000 per share. That brings the total to around $533,300.
Next, here's how I calculate Berkshire's pretax operating earnings for the quarter...
First, I take stated trailing-12-month operating earnings of $53.5 billion. Then I adjust for normalized earnings from Berkshire's insurance segment by subtracting $24 billion of profits from insurance underwriting and investments.
Then I add back half of the average over the past two years, which is $13 billion. (I think this is conservative, given that insurance and investment income has averaged $11.5 billion per year over the past decade, and Berkshire is much bigger now.)
The result is adjusted pretax earnings of $41.9 billion, equal to $29,237 per A-share.
The two components of Berkshire's value are investments and earnings per share ("EPS"). While there have been occasional dips, this is an extraordinary record of consistent growth, as you can see in the chart below:
A conservative, below-market multiple on Berkshire's earnings is 11 times. So with EPS of $29,237, that equals $321,600 per A-share.
Finally, we add cash and investments of $533,300 to the value of Berkshire's operating businesses of $321,600. This totals around $854,900 per A-share and $560 per B-share.
Here's a table showing this calculation going back to 2002:
Yesterday, Berkshire closed at $793,815 per A-share. That means the stock is trading at a 7.1% discount to my estimate of intrinsic value.
That's not as cheap as the 14.6% discount when I last wrote about the stock in May. But it's still attractive.
I'm especially bullish because in addition to today's discounted stock price, I'm optimistic that new CEO Greg Abel can create value via operational improvements and capital allocation. I'm already seeing signs of this, as I discussed in yesterday's e-mail.
This combination leads me to believe that Berkshire's stock is highly likely to beat the S&P 500 over the next five years, perhaps by a margin of two to three percentage points. So if the S&P 500 compounds at 5%, I would expect Berkshire to do roughly 7% to 8% – with a bias toward the upside.
My Stansberry's Investment Advisory team and I recommended buying Berkshire's B-shares in late 2023, when they were trading at a 14% discount to intrinsic value. Subscribers who followed our advice since then are up 46%.
If you aren't a subscriber yet, you can find out how to become one right here.
2) I've recently written three times about software company Veeva Systems (VEEV). I took a quick glance at the company on June 22, did a closer look on August 4, and shared three in-depth pitches yesterday.
I always like to consider the bear case on any stock I'm considering. So today I'd like to share a "Red Flag Alert" by my friend and former colleague Herb Greenberg, published on his Substack on January 12: "Why Veeva's Big Bet May Not Pay Off."
It was a well-timed warning, as the stock closed that day at $233.21. It went on to sink 37% to a low of $148.05 in April before rallying to around $237 today.
The main concern Herb raised was Veeva's move to end its partnership with Salesforce (CRM):
After years of using Salesforce's platform, Veeva made a huge bet in 2022 to go it alone to build its own life sciences [customer relationship management ("CRM") platform]... freeing up the $100 million a year it paid Salesforce in licensing fees.
Salesforce fired back in September 2023, launching its own life sciences CRM, dubbed, the Life Sciences Cloud. To run it, Salesforce hired a 15-year Veeva veteran, who had run what had been called the Veeva CRM.
The challenge for Veeva was this: With many of the top pharma and drug companies already using Salesforce products for other parts of their businesses, they were already in the Salesforce ecosystem... and could likely get a good bundle deal for adding life sciences...
In all, split between two segments, Veeva has around 1,500 customers. Roughly half are legacy Veeva CRM customers. Salesforce wasted no time working those who are also its own customers for commitments. But it wasn't until the formal relationship between the two ended last September that the new rivalry between the former partners shifted into high gear.
Herb also highlighted that Veeva guided its operating margin to decline from 45% to 35%:
Regardless, there may very well be pressure on margins if migration to Veeva's Vault would be required to be put up for bids – especially since, in a price war, Salesforce would be able to absorb lower prices over its much larger base without any perceptible impact. Enter this slide at Veeva's Investor Day in October, showing its non-GAAP operating margin tumbling to 35% by 2030...
Herb concluded:
The bottom line is that whatever monopoly Veeva has is likely ending. Shares fell in November after the company reported better-than-expected earnings, with upbeat guidance. But with the company also acknowledging defections – and that 35% margin "floor" floating out there – analysts cut their future growth forecasts. Even with a somewhat lower valuation, however, at [a price-to-earnings multiple of] 47x it still arguably hasn't priced in the full risk.
And while trying to game the outcome of competition in hopes of a full valuation reset can be dicey, the concept behind my Red Flag Alerts is to find stocks that, in the least, will lag the market. Veeva has all the hallmarks.
So far, Herb has been right: After a sharp drop, Veeva's stock is flat since he warned about it on January 12 versus an 11% rise in the S&P 500.
But I think Veeva will outperform going forward. As three analysts noted yesterday, it has weathered the transition away from the partnership with Salesforce and reported two more strong quarters.
Plus, its valuation is now much more reasonable – at 26.2 times this year's consensus analysts' estimates and 23.6 times next year's.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.