Warren Buffett sees a bargain

Berkshire Hathaway announces share buyback more than a year after it was authorized by the board.

By GuruFocus.com Dec 13, 2012 3:33PM

Image, Stock market copyright Digital Vision, SuperStockBerkshire Hathaway (BRK.A)(BRK.B) has bought back 9,200 of its Class A shares for $131,000 each, from the estate of a long-time shareholder. 


On Sept. 26, 2011, Berkshire's board authorized the repurchase of Class A and Class B shares under two conditions: if the prices were not higher than a 10% premium over the company's book value per share and if the purchase did not reduce the company's cash holdings to below $20 billion. 


At the time of the authorization, the company said, "In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise." The amount repurchased would depend on its cash balance, the attractiveness of other investment and business opportunities, and how much the managers believed the shares were discounted compared to intrinsic value.


The board authorized the actual repurchase at $131,000, "coincident with raising the price limit for repurchases to 120% of book value."


The latest reported book value in the third quarter was $114,590 per share. The company could not repurchase at the current price under the former authorization, as a 10% premium would be $126,049. The 120% maximum would allow share repurchases up to a price of $137,508. 


More share repurchases may follow, though t­­­he company disclosed no specific plans. There is currently no time limit on the authorization. "Berkshire may purchase additional shares in the market or through direct offerings at no more than 120% of book value," it said.­­­


Berkshire shares had increased 14% from the beginning of the year through Dec. 11. They jumped another 3% on news of the buyback to trade at $134,564. 


Over the last five years, however, Berkshire shares have declined 9%. Meanwhile, revenue per share has increased at an annual rate of 5.2%, free cash flow at 19.3% and book value at 8.1%. The company has about $82.4 billion in cash on its balance sheet, up from $68.6 billion a year ago, and no debt. (You can see its 10-year financial page on GuruFocus here).


Berkshire has a price-to-earnings ratio (P/E) of 16.3, price-to-book ratio (P/B) of 1.2 and price-to-sales ratio (P/S) of 1.4.


Buffett has previously said that CEOs should repurchase only when shares fall below intrinsic value. Based on his former comments in his shareholder letter, the buyback indicates he believes his shares currently trade at a discount:


Continuing shareholders are hurt unless shares are purchased below intrinsic value. The first law of capital allocation - whether the money is slated for acquisitions or share repurchases - is that what is smart at one price is dumb at another.


Charlie and I have mixed emotions when Berkshire shares sell well below intrinsic value. We like making money for continuing shareholders, and there is no surer way to do that than by buying an asset - our own stock - that we know to be worth at least x for less than that - for .9x, .8x or even lower. (As one of our directors says, it's like shooting fish in a barrel, after the barrel has been drained and the fish have quit flopping.)


More from GuruFocus
Dec 14, 2012 10:59AM

I guess I really DON'T WANT the Rich giving to CHARITY either, goes against the grain...


NEBRASKA>>>>>STOPPED THE PIPELINE, because of the Ogallah(sp) Aquaifer(sp)

Other tree huggers are against it also....Obama said he would take up the process after elections.

We have plenty of pipelines...We just need a more direct route from the North to the South..


Probably Warren's railroad, BNSF is somewhat beneficial, so are others...

No big deal, that's been going on for DECADES.  NOT something NEW and EARTHSHAKING.

Dec 13, 2012 11:33PM

Crazed....Liberal Socialist Pig?....Buffet is the epitome(sp) of Capitalism...

Think he is just making peace with his Giver...


You do realize he is giving about 85-90% of his fortune away to charity, after his death...?

Not all to his kids....Which are plenty well off.....His one daughter is a philantropist.

And gives much of his personal money away every year to greatful causes.

Dec 13, 2012 11:24PM
A farmer wanted to be millionaire; So they gave him a million, and he farmed until it was gone.
Dec 13, 2012 8:47PM
Well quite obvious to me, Warren didn't hurt himself or BERK with this choice..
Dec 13, 2012 8:02PM

You`ll never go wrong with Warren.I don`t care if he`s 82 or 102.His track rcord speaks


Dec 13, 2012 7:29PM
A rich man once said,  I lost millions and millions in a business deal.  The poor man replied,  I lost a lot more than that.  The rich man said no you could not have,  the poor man said yes I did,  I lost all I had.
Dec 13, 2012 7:27PM

I still think Sam Snead was and always will be the best and greatest golfer ever.  Sam won about twice as many touraments as the next winner (Jack Nicholas).


Sam the best,  and  Ben Hogan the next best.  All the others are ay down the line

Dec 13, 2012 6:59PM
Warren Buffett is Obama's parrot now that the companies he holds stock in have been bailed out. Berkshire would have tanked without the stimulus and tarp money being thrown to the banks. All those statements about the Buffett rule and investors being willing to shrug off higher taxes is pay back for the favors and the immunity of the CEO's from prosecution. Warren is a crook and he and his banking buddies should be in jail. Moody's, part of Berkshire's larger investments in their portfolio @ 28,415,250 shares, was putting AAA ratings on junk paper backed by sub-prime mortgages. Those investments were being sold to municipalities and pension funds as solid investments while the bankers were unloading them off their balance sheets knowing they were toxic and the whole scheme was about to unwind. I'm tired of the likes of Jamie Dimon and Warren Buffett being lifted up by the media and the investment world like some kind of financial geniuses. Companies that Berkshire had large positions in and a large amount of influence over were part of the sub prime scandal. I'LL GIVE HIM CREDIT FOR HIS PHILANTHROPY.
Dec 13, 2012 6:36PM
Ok...we shall see what we see.  I thind you are challenging you own ignorance in this not and not mine.  The first thing you might do is learn how to spell 'advertising'..that is simple enough. Talk about some simpleton questioning.....and, you mention ignorance.  Play both sides and gain whatever it is you want to. You are that "weak"!  You just made yourself that without even trying!
Dec 13, 2012 6:27PM

Maybe the IRS should seize less of my income are start taking his wealth - then we'll see what Warren thinks about redistribution

Dec 13, 2012 5:52PM

People, people, people...

I'm not a democrat or a republican (don't care for either) but I am a pragmatist.

I don't understand why so many of you middle class and some lower class people are in favor of the rich keeping their money and continuing to amass wealth of enormous proportions.  Are you expecting them to share this money with you.  Not likely.  They are more likely to take that last $10 you have in your pocket.  A good number of these people amassed these fortunes by using not so moral or ethical tactics. I'm not talking about small business owners or doctors, entrepreneurs or such, I'm talking about the extremely rich who make tens and hundreds of millions of dollars a year.  The ones who truly run this country.   These people make their money primarily off of investments and closing deduction loopholes or raising tax brackets is not going to affect them.  They will still pay only 15% tax because they have cleverly made sure that capital gains is only taxed at 15%.  Did you notice nobody is saying lets raise the capital gains tax on anyone making more than 1 million from investments.

No mater what deal the Dems and Reps come up with in reducing the deficit, mark my words, the super rich will not be a part of it.

Dec 13, 2012 5:43PM

He's been rich for a long time, he only wants the rich to pay more taxes, he would still be rich if the Banks were not bailed out. He pays his taxes, he has willed the majority of his wealth to charity,

i would really like to be in that kind of deep doo doo.

Apparently most of the people commenting are ignorant of the facts, but do not let that ignorance prevent them from advertizing said ignorance for all to see.

Dec 13, 2012 5:28PM

I'd be OK with anybody discussing the article at hand, and not some other BS about Buffett's taxes or politics. Just sayin'.


Let me explain to the leprechaun - a board of directors has only a few (legal) choices to make when it comes to dealing with cash left after operating expenses. They can use it to reinvest in the business, buy other businesses, or distribute dividends.  BRK has never paid a dividend.  Historically, BRK share holders would do well to let Buffett reinvest the money.  Right now, he is saying one of the best bargains out there is BRK iteself. In buying back shares, the value of stock goes up for people who continue to hold.

Dec 13, 2012 5:15PM
Funny how he wants everybody to be taxed now that HE is already rich.

Funny how if there weren't bank bail outs in 2008 he'd be on the street poor.

He was once pro business, now I think he feels guilty for being lucky and well off...
Dec 13, 2012 5:04PM

qutie the paradox ain't it?? the left hate people like this, and yet he can do no wrong, he also didn't pay taxes in 12yrs, oh but that's glossed over since he insists that he should be taxed more, cuz he isn't taxed enough, how insanely stupid is this old fool??? Romney and buffet are extreeeeeeeeeeeeeeemly wealthy and Romney is hated, but pays his taxes and gave 7million dollars to various charities, buffet admired?? huh??, never gave anywhere near 7mil to charities and a tax cheater, plus he's a pathetic old obamazombie.


only the mind of the insane left does that make any sense, in looney lefty land the insane makes perfect sense, oh and looks like the union thug filth in MIchigan fell down and went BOOM! bout time those lowlife's got what they deserved, hopefully know Michigan has a chance to revive itself to prosperity even with that pig marxist muslim bastard osama in office

Dec 13, 2012 4:26PM
Sounds like the master of BS is in some deep do do to me!  Go away old man....your time is over with the con!
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