How Berkshire Hathaway’s Valuation Compares

Stock returns

Berkshire Hathaway (BRK.B) stock has risen ~0.5% in the last month and 19.6% in the last year. In comparison, the S&P 500 (SPX-INDEX) (SPY) has risen 2.3% over the last month and 11.4% over the last year. Berkshire is beating broad indexes thanks to strong performance by BNSF Railway and its insurance, manufacturing, and services, offset by its energy holdings’ weaker performance.

How Berkshire Hathaway’s Valuation Compares

Berkshire Hathaway’s revenue is expected to grow strongly in 2Q18, by ~7.2% to $61.7 billion, aided by higher premiums, manufacturing, services, and BNSF. Analysts expect the company’s net earnings to rise steeply by 36%, mainly due to claims and corporate tax falling.

Valuation multiples upbeat

Berkshire Hathway’s diversified investments continue to command a premium over broad indexes and peers. The company is trading at a one-year forward PE (price-to-earnings) multiple of 20.3x and a current EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 13.8x. Both multiples are higher than those of other conglomerates, asset managers, and broad indexes.

While Berkshire Hathaway’s trailing-12-month PE multiple is 10.8x due to one-time gains, peers (XLF) General Electric (GE) and Chubb (CB) are trading at one-year forward PE multiples of 13.3x and 11.7x, respectively.

Portfolio holdings

Berkshire’s investment portfolio is expected to see downward revaluation in 1Q18, mainly due to broad market decline. Berkshire Hathaway’s major holdings’ 1Q18 performance was as follows:

  • Wells Fargo (WFC) fell 15.9%.
  • Kraft Heinz (KHC) fell 22.0%.
  • Apple (AAPL) fell 3.3%.
  • Coca-Cola (KO) fell 6.3%.
  • American Express (AXP) fell 8.0%.
  • IBM (IBM) fell 2.8%.

Investment portfolios’ valuation is expected to rebound marginally in 2Q18. Berkshire’s core operating performance is expected to drive its performance in future quarters.