Berkshire Hathaway stock is surging as investors tune out the controversy about recent shareholder proposals on climate and diversity and focus on the company’sstrong earningsand exposure to an improving U.S. economy.
Berkshire’s Class A shares, at $436,847, are up 6% since the company’s profit report on May 1 and have risen 25% this year. They’re comfortably ahead of theS&P 500’stotal return of 13%, after badly lagging behind the index in 2019 and 2020. The stock ticked up 0.4% Friday after hitting a record high earlier in the session. The more liquid Class B shares rose 0.3% to $290.56 in recent trading Friday.
The conglomerate’s first-quarter after-tax operating earnings rose almost 20% to $7 billion, and on a per-share basis gained 26% to $4,577, handily topping the consensus estimate of $3,792 a share.
With the stock rallying, investors will be interested to see if Berkshire continues to scale back its stock buyback program, given that CEO Warren Buffett has said the company will be “price sensitive.” The stock now trades for 1.5 times its March 31 book value of around $294,000 a share. That is above the 1.4 times book average of the past five years and considerably above a low of 1.1 times book a year ago.
Berkshire bought back $6.6 billion of stock in the first quarter, below the $9 billion repurchased in the third and fourth quarters of 2020. AndBarron’sestimates buybacks of about $1.4 billion from March 31 to April 22, based on the share count disclosed in Berkshire’s 10-Q.
First-quarter profits were higher at Berkshire’s large insurance businesses, notably auto insurer Geico. Earnings also rose 5% at the Burlington Northern Santa Fe railroad, while profits jumped more than 50% at Berkshire Hathaway Energy, the company’s utility business.
Profits at Berkshire’s diversified manufacturing operations rose 15% to $2.4 billion. This segment includes chemical maker Lubrizol and an array of other businesses.
Berkshire has exposure to thehot housing sectorthrough Clayton Homes, a maker of manufactured housing whose profits nearly doubled in the first quarter. It also owns Benjamin Moore (paints) and Shaw (flooring) and Johns Manville (insulation and roofing).
“Operating earnings reflected widespread improvement relative to the comparable period in 2020, which was impacted by the pandemic-driven economic slowdown,” wrote Edward Jones analyst James Shanahan, who has a Buy rating on the stock.
With Berkshire continuing to sell stocks—about $4 billion of net sales in the first quarter—cash continues to build on Berkshire’s balance sheet with the company holding $145 billion of cash and equivalents at the end of the first quarter, up from $138 billion at year-end 2020.
That buildup may continue with Buffett pessimistic on finding a large acquisition and if the buyback slows.
“With the buyback decelerating, we could be looking at $165 billion of cash a year from now,” Shanahan says. He argues that Berkshire ought to pay a dividend, given the cash buildup and limited investment opportunities. Buffett, however, rejected the idea at the annual meeting last week, arguing that most shareholders don’t want one.
Berkshire shareholders rejected shareholder resolutions supported by some notable institutional investors that sought to have the company provide more disclosure about climate change and workforce diversity. Buffett also opposed these proposals.