Berkshire Hathaway 2023 Valuation (NYSE:BRK.A)

Introduction

I believed Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) was trading at a nice discount at the time of my 2022 article. The stock has gone up substantially since that time and my thesis is that the discount has narrowed.

BNSF $125 Billion

I think BNSF is worth at least 80% of Union Pacific (UNP). The 2023 10-K for Union Pacific shows 609,777,914 shares outstanding as of February 2. Their February 23 share price was $256.91 implying a market cap of $156.7 billion and 80% of this is about $125 billion.

BHE $69 Billion

The 2023 letter to shareholders in the 2023 annual report didn’t give the reader much to be excited about with respect to Berkshire Hathaway Energy. This part was worrisome:

It will be many years until we know the final tally from BHE’s forest-fire losses and can intelligently make decisions about the desirability of future investments in vulnerable western states. It remains to be seen whether the regulatory environment will change elsewhere. Other electric utilities may face survival problems resembling those of Pacific Gas and Electric and Hawaiian Electric. A confiscatory resolution of our present problems would obviously be a negative for BHE, but both that company and Berkshire itself are structured to survive negative surprises.

This part of the letter about Berkshire not knowingly throwing good money after bad was disturbing:

Whatever the case at Berkshire, the final result for the utility industry may be ominous: Certain utilities might no longer attract the savings of American citizens and will be forced to adopt the public-power model. Nebraska made this choice in the 1930s and there are many public-power operations throughout the country.

Per my 2022 valuation article, BHE bought shares from Berkshire Vice Chairman Greg Abel during 2022 which implied BHE had a market cap of about $88.8 billion at the time. Berkshire owns 92% so it implied their part was about $81.7 billion with about $7.1 billion of non-controlling interests. Things are different now. I fear BHE is worth 10-20% less than the 2022 figure of $88.8 billion – maybe $75 billion as a whole such that Berkshire’s piece is $69 billion with about $6 billion in non-controlling interests.

Other Non-Insurance Subsidiaries $200 Billion

I like to look at pre-tax operating earnings for other non-insurance segments. The manufacturing segment saw pre-tax operating earnings go up from $11,177 million in 2022 to $11,445 million in 2023. McLane saw an increase from $271 million to $455 million. Service and retailing declined slightly from $4,771 million to $4,721 million. As a group, the 2023 figure is $16,621 million and I like to use a multiplier of 12x such that these segments are worth about $200 billion.

Investments

The first five lines of the balance sheet are especially helpful with respect to investments.

Cash, T-bills & Fixed Maturities $187 Billion

This is the sum of the first three lines of the balance sheet.

Stocks $354 Billion

This comes from the fourth line of the balance sheet. Despite a bit of trimming, Apple (AAPL) is a huge chunk of this at over $174 billion.

Equity Method Investments $29 Billion

This figure comes from the fifth line of the balance sheet and the breakdown here is about $13.2 billion for Kraft Heinz (KHC), $15.4 billion for Occidental (OXY) and $0.4 billion for other considerations.

Deferred Tax Liability $(38) Billion

The “Investments, including unrealized appreciation” line of the Deferred income tax table went up from $41.2 billion in 2022 to $56.8 billion in 2023. Given Berkshire’s impressive track record with tax planning, I think the economic reality is about 2/3rds of this reported number which is around $38 billion.

Non-Controlling Interests Outside Of BHE $(4) Billion

The 2023 annual report shows “Noncontrolling interests, predominantly redeemable” of $3,361 million for Pilot Travel Centers and the consolidated balance sheet has a Redeemable non-controlling interests line of $3,261 million. The report goes on to say the remaining 20% interest in PTC was acquired in January 2024 for $2.6 billion.

The consolidated 2023 balance sheet shows overall non-controlling interests shrank down to $6,236 million from the 2022 figure of $8,257 million. However, I believe these accounting numbers understate the economic reality. One reason for this is because the 2021 annual report said the economic reality of non-controlling interests at the time was about $11 billion despite an accounting figure of $8.7 billion.

I think there were about $4 billion in economic non-controlling interests beyond the approximate $6 billion from BHE at the time of the 2023 filings.

Other Considerations $0

I treat Berkshire’s insurance operations and their float liability as a wash.

Table And Waterfall Chart

Here is a spreadsheet summary of the high end of my valuation range:

Click to enlarge

I also like to visualize these numbers in a waterfall chart:

The 2023 10-K shows 1,441,483 Class A share equivalents as of December 31. The market cap is about $907 billion based on the February 23 class A price of $628,930.19.

The market cap is close to the high end of my valuation range and I think the stock is a hold.

Disclaimer: Any material in this article should not be relied on as a formal investment recommendation. Never buy a stock without doing your own thorough research.