No. of Recommendations: 1
Fair Value Estimate for Berkshire Hathaway Class B
With its 4-star rating, we believe Berkshire Hathaway's stock is undervalued compared with our long-term fair value estimate.
Our fair value estimate for Berkshire Hathaway is $370 per Class B share, which is equivalent to 1.45 and 1.33 times our estimates for Berkshire's book value per share at the ends of 2023 and 2024, respectively. Our fair value estimate is derived using a sum-of-the-parts methodology, valuing each of Berkshire's operating segments separately and then adding them back together.
After updating our valuation model for 2022 results, as well as revising our projections for 2023-27, we have increased our valuation for Berkshire's insurance operations to $172 per Class B share from $166, owing to adjustments we've made to its earned premium growth, underwriting profitability, and returns and overall yield on its investment portfolio.
Our valuation of Berkshire's railroad operations decreased to $56 per Class B share from $58, with our revised forecast assuming that carload volumes increase at a 1.1% compound annual growth rate in 2023-27 (compared with negative 1.5% previously), with freight revenue expanding 3.5% on average annually and BNSF's operating ratio reaching 63.8% at the end of 2027 (down from 66.8% at the end of 2022).
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