Thursday, December 28, 2006

What's Berkshire Hathaway Worth, Anyway -- II ?

In October I shared a valuation analysis of Berkshire Hathaway Cl A common stock based on a multiple regression of BRK/A's book value and interest rates compared to its price. While the calculation is very simple it has had a surprisingly good fit with BRK/A selling price over the last 15 years.

At the time, based on the book value through mid-year, I estimated that the year-end 2006 fair value of BRK/A was about $105,000 per share. The chart above shows that Mr. Buffett's stock will likely finish the year near $110,000 and, according to our model is slightly over priced. Having said this, I have estimated BRK/A's year-end 2007 book value at $77,000. Using that figure and my estimate of interest rates, I arrive at a 2007 year-end "fair value" for BRK/A of just over $124,000. That is approximately a 13% expected return.

That seems like a good bet to me. Berkshire Hathaway is in a sweet spot in almost all of their businesses. I am still in the camp that believes that housing problems will slow economic growth more than expected. If this is the case, there is no stock I can think of that has more quality and profit potential than BRK/A.
PS. If anyone has a book value guess that you would like for me to plug into my model, please comment below, or email me. There are no Wall Street estimates that I see that I believe are reliable.

We own the stock in our Capital Builder style of management. It is the only stock we own that does not pay a dividend. DCM employees and my family own the stock.

This blog is for information purposes only. Do not make buy and sell decisions based on anything you read here. Please consult your own financial advisor.