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Stock Analyst Update

Berkshire's Weaker Q1 Earnings Didn't Stop Spending

Berkshire has increased its stake in Apple, as well as the five Japanese trading houses, and bought shares of several German securities.

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Having dug deeper into wide-moat-rated Berkshire Hathaway's (BRK.A) (BRK.B) first-quarter results, we expect to leave our $550,000 ($367) per Class A (B) share fair value estimate in place. Top-line growth was in line with our expectations, with first-quarter operating revenue, excluding the impact of investment and derivative gains/losses and other adjustments, increasing 9.6% to $70.8 billion. Adjusted pretax earnings of $8.0 billion, however, did come in a little lower than we were expecting, with results being 2.9% lower year over year. 

The company did, however, put a significant chunk of its excess capital to work, dedicating $41.4 billion (net of sales) to the purchase of equity securities (with Chevron and Occidental Petroleum accounting for the majority of the outlays) during the first quarter. Management also noted during the annual meeting that Berkshire had increased its stake in Apple, as well as the five Japanese trading houses, and had bought shares of several different German securities in the March quarter. On top of that, the insurer reported a $4 billion stake in HP in early April and concluded the 25-day go-shop period attached to its $11.6 billion acquisition of Alleghany over the Easter weekend (with that deal expected to close during the fourth quarter of 2022).

The first-quarter investment activity did, however, reduce share repurchases during the March quarter. Having bought back an average of $6.5 billion of stock quarterly the previous eight calendar quarters, Berkshire's $3.2 billion of share repurchases during the first quarter of 2022 was a meaningful step down. That said, the stock has had a fairly strong run this year, increasing close to 18% in value during the first quarter alone. Given the defensive nature of Berkshire's stock, we would expect to see more share repurchases going forward when the market is in bullish territory, and less when the equity markets are bearish and there are better opportunities for the company to put money to work.

Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.