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Berkshire has spent nearly $ 20 billion more to buy back its own shares since mid-2018 than it has deployed to build up its stake in Apple until the end of last year. In total, Buffett has invested around $ 51 billion in buybacks since a policy change more than three years ago, and appears to have continued to grab at least $ 1.7 billion in shares since late. September.
Buffett, chairman and chief executive of Berkshire, turned Berkshire into a sprawling conglomerate valued at over $ 650 billion, but that immense size increased the pressure on his need for what he saw as a “size-large acquisition.” ‘an elephant’ to accelerate the growth of Berkshire. Buffett has been foiled in his recent search for deals, sometimes outbid by aggressive private equity firms. This has left him increasingly relying on buybacks, with over $ 20 billion in buybacks so far this year, as a way to leverage some of Berkshire’s record cash flow.
“The bullish case looks like they bought back $ 20 billion worth of their stocks because they’re confident about their future prospects and that should be a catalyst for stocks, and I have a feeling that will be. probably the case, ”Cathy Seifert, analyst at CFRA Research, said. “The case of the bear, which it is also relevant to underline, is that it is about a company which had, like a declared desire, the need to make additional acquisitions and they did not have been able to do so. “
That’s a marked change for a CEO who previously avoided buyouts. For years, Buffett preferred big deals and spending money to buy shares of other companies rather than buy back Berkshire’s own shares. But that changed in 2018 when the company’s board lifted the cap on buyouts, giving Buffett and his longtime business partner Charlie Munger more flexibility to allocate profits.
The buybacks even exceeded Berkshire’s largest stake, an Apple Inc. stake valued at more than $ 121 billion at the end of September. The company has spent just $ 31 billion to buy Apple shares since it started racking up that stake in 2016 through the end of 2020, according to the most recent data available.
What Bloomberg Intelligence says
“We believe that Warren Buffett’s large share buybacks show his conservatism as rising valuations make transactions he may find interesting rarer. “
— Matthew Palazola et Kylie Towbin, analystes BI
Click here to read the research.
Not all buyout activity, while significant in size, was enough to significantly reduce some of the conglomerate’s money. Berkshire ended September with a record $ 149.2 billion in its coffers. While investors often want management to remain disciplined about when and how they spend money, the increase in cash flow is “somewhat disappointing,” according to Edward Jones analyst Jim Shanahan.
“The buybacks went well, but the cash balances increased further,” Shanahan said. “Liquidity is now approaching $ 150 billion. It was certainly unexpected earlier this calendar year, I would have thought they could have handled this decline with a combination of investments, acquisitions and buyouts. “
The Omaha, Nebraska-based company, which posted third-quarter earnings on Saturday, posted an 18% gain in operating profit during that period, supported by record rail profits and strong results of its energy activities. This helped offset even more underwriting losses in its group of insurers, which were hit by disasters such as Hurricane Ida and more frequent claims by its drivers to auto insurer Geico.
Berkshire also revealed that it repurchased at least $ 1.7 billion in shares from late September to October 27, according to Saturday’s filing. Whitney Tilson, of Empire Financial Research, who has been attending Berkshire’s annual meeting for more than two decades, applauded the buyout, but noted that he would still prefer Buffett to find the next lucrative stock bet.
“If Buffett could find another Apple, I would clearly prefer him to devote himself to it,” Tilson said. “Buying back Berkshire stocks makes sense when you’re bogged down in the money. “
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