Investing

Berkshire Hathaway Earnings Preview: What Has Buffett Been Up To?

Ethan Feller

Published: August 4, 2023 7:55 am

Last Updated: August 4, 2023 10:27 am

Warren Buffett’s conglomerate Berkshire Hathway BRK.B reports earnings Friday, August 4 and as always, market participants are anxiously anticipating the company results and Buffett’s comments.

Although over the last two decades Berkshire Hathaway’s performance has almost perfectly matched the returns of the broad market, the last three years have been particularly good for the stock. Over the last three years BRKB has outperformed the market by 32%, thanks primarily to its strong performance during the challenging 2022 period.

Outperforming in the bad times is exactly Warren Buffett’s modus operandi and demonstrates his absolute mastery of the investing craft, even in his later years.

Will Buffett and his holding company be able to continue its market beating run? At Friday’s quarterly earnings meeting we will get more insight into where Berkshire stands in this complex economic environment, and what Buffett expects in the coming months and years.

Earnings Estimates

Berkshire Hathaway has a Zacks Rank #3 (Hold) rating, reflecting mixed earnings revisions. Over the next 3-5 years earnings are projected to grow 7% annually. Current quarter earnings are forecast to grow 53% YoY to $6.44 per share, and sales for the quarter are expected to grow 2.8% YoY to $78.3 billion.

Although we can’t know if BRKB will beat earnings estimates in the coming report, we do know that it has an incredible history of growing them in the long run. Over the last 20 years EPS have grown from $3.17 to $14.47 per share, a compound annual growth rate of 10.7%.

Sales have grown at an incredibly steady upward pace as well. Over the last 20 years sales have grown from $74 billion to $317 billion, a CAGR of 10.2%.

At the last earnings report Berkshire Hathaway crushed earnings estimates by 32.3%, however for the coming quarter, the Zacks Earnings ESP doesn’t offer a prediction.

Buffett’s Recent Trades

Over the last few years Buffett has made a couple particularly impressive trades. The first one involved borrowing Yen to invest in Japanese trading houses, and more recently, he has been building a substantial energy position through Occidental Petroleum OXY.

In the midst of the COVID-19 pandemic, Warren Buffett displayed his legendary investment prowess again by capitalizing on Japan’s unique financial landscape. Recognizing the unprecedented low-interest rates there, he strategically obtained a substantial loan in Japan at virtually at 0%. Fearlessly leveraging this opportunity, he used the funds to acquire a portfolio of Japan’s five largest trading houses.

This move paid off handsomely as the stocks of these trading houses have surged, tripling in value since his strategic move. What makes this achievement even more impressive is the fact that Buffett achieved such remarkable gains on borrowed money, showcasing his unmatched talent for spotting opportunities.

Regarding Occidental Petroleum, Buffett has been executing a massive buying spree, bringing his ownership of the stock to $13 billion in value. Additionally, last year Buffett received permission from federal regulators to buy up to 50% of oil producer.

Clearly, the fall in oil prices over the last year hasn’t dissuaded Buffett’s decision to buy oil stocks, and if anything, it has emboldened him. Energy was the best performing sector in the market last year, and although it has underperformed for most of 2023, oil prices have been rallying over the last month. In fact, the energy sector was again the best performing sector in the market over the last month.

In the OXY price chart below, we can see that Buffett has been buying shares whenever the stock dips below $60 and has likely played a role in the large consolidation the stock has built this year.

Bottom Line

Investors eagerly await Berkshire Hathaway’s earnings report and Warren Buffett’s investing insight, as they should. Berkshire is so large and broadly diversified that in many ways it reflects the performance of the economy broadly and should offer updates on the economic picture. Buffett as always should provide some timeless wisdom for us investors seeking just a morsel of the success he has achieved.

Occidental Petroleum Corporation (OXY): Free Stock Analysis Report

Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report

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