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Stock Analyst Update

Berkshire Hathaway Posts Earnings Loss for Q2 on Unrealized Investment Marks

Fair value estimate on stock of $535,000 unchanged, shares seen as `modestly undervalued’

Berkshire's corporate headquarters in Omaha, Nebraska

There was little in wide-moat Berkshire Hathaway’s (BRK.A) second-quarter results that would alter our long-term view of the firm. We are leaving our $535,000 ($357) per Class A (B) share in place, and view the shares as being modestly undervalued.

Second-quarter reported revenue, which includes unrealized and realized gains/losses from Berkshire’s investment portfolios, declined 90.4% to $9.3 billion from $96.5 billion in the prior year’s period. Excluding the impact of investment and derivative gains/losses and other adjustments, second-quarter operating revenue increased 10.2% to $76.2 billion.

Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 38.8% year over year to $9.3 billion during the June quarter, with all of the company’s segments posting solid operating earnings growth (as strong results from Berkshire’s reinsurance and primary groups overcame another poor quarter from Geico). When including the impact of the investment and derivative gains/losses (which amounted to $53.0 billion during the quarter), reported operating earnings declined to negative $43.8 billion from positive $28.1 billion in the prior year’s period.

Book value per share, which serves as a decent proxy for measuring changes in Berkshire’s intrinsic value, decreased 9.1% sequentially to $314,138 (from $345,469 at the end of March 2022), slightly below our forecast of $316,967. The company closed out the June quarter with $105.4 billion in cash and cash equivalents, down slightly from $106.3 billion at the end of the first quarter.

This left Berkshire with an estimated $70.2 billion in dry powder that could be committed to investments, acquisitions, and share repurchases. During the second quarter, the company invested (net of sales) $3.8 billion in equity securities and repurchased just $1.0 billion of its own common stock. Both of these activities were disappointments to us given the selloff in the equity markets during the period.

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