Berkshire Hathaway, the conglomerate led by legendary investor Warren Buffett, has reported strong earnings for the fourth quarter, leading to a rise in the company’s shares. The news has further boosted the already impressive performance of Berkshire’s Class B shares, which have gained 17% this year.
The fourth-quarter operating earnings for Berkshire stood at $8.481 billion, a significant increase of 28% compared to the same period last year. This growth was primarily driven by substantial gains in the company’s insurance business. Operating earnings refer to profits generated across Berkshire’s various sectors, including insurance, railroads, and utilities.
In addition to the impressive earnings, Berkshire’s cash levels have also reached record highs. The conglomerate held a staggering $167.6 billion in cash during the fourth quarter, surpassing the previous record of $157.2 billion held in the previous quarter.
Despite these positive developments, some analysts believe that the stock is currently fairly valued. Edward Jones’ James Shanahan stated that the current share price already reflects the conglomerate’s strong earnings outlook. While Berkshire has outperformed its financial services peers in 2023, Shanahan believes that the stock has already priced in these positives.
Warren Buffett himself does not expect Berkshire to achieve extraordinary growth in the future. In his annual letter to shareholders, Buffett stated that he anticipates Berkshire will only slightly outperform the average company as it reaches a net worth of 6% of the total S&P 500 companies. He emphasized that anything beyond this slight outperformance would be wishful thinking.
Buffett also mentioned that only a few businesses are likely to have a significant impact on Berkshire through acquisitions. The conglomerate’s last major deal was in 2022 when it acquired insurer and conglomerate Alleghany for $11.6 billion. Buffett’s cautious approach suggests that Berkshire will focus on maintaining its current mix of businesses rather than aggressively pursuing new acquisitions.
Overall, Berkshire Hathaway’s strong fourth-quarter earnings and record cash levels have contributed to a rise in the company’s shares. While some analysts believe the stock is fairly valued, Warren Buffett remains cautious about the conglomerate’s future growth prospects. With its diverse group of operating companies, Berkshire is expected to perform slightly better than the average American corporation while minimizing the risk of permanent capital loss.