Warren Buffett’s Berkshire Hathaway Inc. recently gave him more leeway to make stock buybacks. Now, after the company announced this weekend that its cash pile has swelled to $111 billion, some investors are wondering when they might reap the benefits.
Berkshire’s second-quarter results released Saturday didn’t detail how many of its shares it was willing to repurchase, or at what price. But investors do know that the window is now open: Last month, the company said it wouldn’t initiate the buybacks until second-quarter earnings were made public.
The catch for some analysts is that the strength of the quarterly performance could even make the shares too expensive. Under the buyback plan, both Buffett, who’s chairman and chief executive officer, and Vice Chairman Charles Munger have to find the price “below Berkshire’s intrinsic value, conservatively determined,” the company said last month.
“The market believes they have the willingness and the ability to buy back stock,” Jim Shanahan, an analyst at Edward Jones, said in a phone interview. “It’s possible that the stock just moves higher and the buyback opportunity proves fleeting.”
Buffett has historically favored investing in companies and snapping up businesses such as railroads and insurers to expand his Omaha, Nebraska-based conglomerate. But prices for some businesses reached all-time highs last year and created a barrier for “virtually all deals” that Berkshire reviewed, Buffett said in February in a letter to shareholders.
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At the same time, his war chest is far higher than he wants, even as Berkshire plows money into holdings such as Apple Inc.
“Even with buying a huge position in Apple, he’s having a hard time deploying that cash,” said Bill Smead, who oversees about $2.2 billion, including Berkshire shares, at Smead Capital Management.
Buffett has repurchased shares before, agreeing in 2012 to buy back some stock from the estate of a longtime shareholder. Under Berkshire’s previous buyback program, the company couldn’t pay more than a 20 percent premium over book value for shares. Buffett has used book value as a “rough” measure of the company’s intrinsic value, even though he says it understates the value. The new program eliminates that cap.
Book value, which measures assets minus liabilities, climbed to $217,677 per Class A share at the end of the second quarter, the company said Saturday. Those shares traded 40 percent above that as of Friday’s close: $304,671. Some investors, including Steven Check of Check Capital Management, say buybacks could begin shortly. Still, it’s hard to gauge how much stock the company could repurchase before the price rises, he said.
Buffett didn’t respond to a request for comment left with his assistant outside of regular business hours.