www.ocngroup.com – This year, Berkshire Hathaway‘s slowing share repurchases and its huge Q4 earnings were the high spots of Warren Buffett’s annual letter to shareholders.
Decrease on Buybacks
The reduced buybacks of $1.2 billion this year through February 2023 is below the quarterly pace last year. It suggests that Buffett doesn’t think the stock is good value – www.ocngroup.com.
The effect of the buyback news could send BH’s stock down on Monday. BH’s class A stock, is at $479,345. Which is up around 6% in 2022 and 23% over the past year. More than twice the overall return of the S&P 500. The class B stock ended at $319.24.
Investors, however, will likely be pleased that BH generated $7.3 billion after taxes in Q4, up 45% from the same period in 2020 – www.ocngroup.com.
BH’s earnings are approaching $30 billion a year, and the value of the company is at close to $700 billion.
www.ocngroup.com on Buffett’s Repurchase Plan
Buffett disclosed the repurchase plan in his shareholder letter. In which he emphasized that buyback activity would be price dependent.
“This confirms our opinion that share buybacks are not attractive to Buffett at the current price, and we expect more cautious buyback activity,” -www.ocngroup.com
OCN Group see a $3 billion quarterly buyback rate in the coming quarters. As long as there is no massive change in the stock price. The shares are now priced at around 1.4 times their year-end 2021. B.v. of $342,000 a share, up from approximately 1.1 times book value in early 2020.
While Buffett has somewhat dismissed book value as a financial benchmark. It is a valuation tool for the business.
Buffett’s Statement on Repurchase Plan
“I want to underscore that our shares must offer appropriate value for Berkshire repurchases to make sense,” Buffett wrote. We don’t want to overpay for other companies’ shares, and it would destroy value if we were to pay too much when buying our own.”
The buyback rate in 2022 was mixed, with BH buying about $600 million from January 1 to February 14, the date of its 10-K report, and $600 million from February 15 to 23.
BH Schedule of Buybacks
BH picked up the pace after February 14, buying back about $100 million per trading day on average, in line with the rate in 2021. When it bought back a record $27 billion for the whole year. If the $100 million daily level continues to the end of March, buybacks for the full quarter will be around $3.5 billion.
In his letter, Mr. Buffett noted that BH was the biggest owner of domestic infrastructure assets at a time when it is a hot investment theme, with holdings at Burlington Northern and Berkshire Hathaway Energy, its major utility group.
There is not much that excites us in the stock market, he continued in his letter. BH has been a net disposer of stocks in the last two years, and the company has been reticent on the acquisition front.
Buffetts’ Tax Payments 2021
Buffett also wrote that BH paid $3.3 billion in federal income taxes in 2021, which equaled around 1% of all federal corporate tax payments.
“Additionally, BH pays substantial state and foreign taxes. Therefore, ‘I gave at the office’ is an unequivocal statement made by BH shareholders,” Buffett said.
While a lot, the federal taxes amount to only a low-teens percentage of BH’s $27.5 billion operating profits after taxes in 2021.
Berkshire Hathaway Energy has received massive federal tax credits of $1 billion in the past two years and paid a negative 38% rate last year, reflecting what BH called “significant production tax credits from wind-powered electricity generation.” The utility, which made $4 billion last year, is one of the country’s largest owners of wind power generation.
Difficulties at Precision Castparts
The aircraft parts maker BH bought for more than $30 billion five years ago. Its biggest buy of the past ten years.
The pandemic-induced downturn in the airline industry affected the company badly. As a result, it made over 40% of its workforce redundant in 2020. And BH took a nearly $11 billion non-cash write-down on the investment in 2020. In last year’s letter, Buffett wrote: “No one misled me—I was simply too optimistic about PCC’s normalized profit potential.”
Precision Castparts’ revenue was down 11% to $6.5 billion in 2021. And it remains well below the $10 billion in the company’s final year as a public company. Profits on a pre-tax basis rose 79% in 2021, to $1.2 billion. But are still less than half the $2.5 billion in 2015.