Warren Buffett has $128 billion in cash to burn


Berkshire Hathaway Warren Buffett reported earnings on Saturday and Wall Street is passionate about one key thing: its pile of money.

In the third quarter, the holding's cash balance rose to a record $ 128.2 billion – compared with $ 122.4 billion in the previous quarter and $ 23 billion ten years ago – leading analysts are wondering why the company is not spending.

Berkshire’s latest acquisition was Castparts Accuracy in 2015 and the company did not significantly accelerate its buyback program, which contributed to an increase in the cash balance.

According to a Refinitiv report, the company reported a profit of $ 3.07, which exceeded a street consensus forecast of $ 2.84. Revenue also exceeded expectations, and Berkshire said it bought back $ 700 million worth of shares in the quarter.

With no clear signs of why Berkshire is accumulating cash, a number of analysts have asked why the company is not buying back more shares. This is especially true since stock This year it grew by only 7%, and this is the worst year in the last ten years.

In comparison, the wider market was in tears. Dow Jones Industrial Average as well as S & P 500 rose to record highs on Monday, bringing their total growth for the year to 18% and 23%, respectively.

Morgan Stanley said the stock repurchase program is fading compared to the company's cash balance, and that investors "may be alarmed by the minimum stock repurchases this quarter."

UBS analysts supported this concern by saying that the buyback remains modest and that they were surprised that “the company is not showing a more aggressive reaction to buy back stocks,” given the “discount to the internal value of the shares that BRK currently trades and a substantial surplus cash balance. "

Morgan Stanley has equal weight and a target score of $ 217. UBS has a purchase rating of $ 122 for 12 months.

Buffett has traditionally not been a supporter of the buyback of a large number of shares of Berkshire Hathaway, although in 2018 he lifted the restriction this will facilitate future foreclosures.

“It is difficult to assess the pace of potential future share buybacks for Berkshire, which we now think may be modest in the future. We still consider dividends for shareholders unlikely, ”said Barclays analyst Jay Gelb. “Berkshire now has more than $ 100 billion in cash that can be immediately deployed to increase acquisitions, complement organic growth, and invest and buy back stocks,” he added. Barclays has a neutral stock rating.

While Buffett has not been buying entire companies lately, he has been buying shares. As of the last round of SEC applications, Best Berkshire Assets by Value are located an Apple, Bank of America, Coca Cola, Wells Fargo, American express as well as Craft heinz,

“In recent years, the reasonable path that we must follow has been clear: many stocks offered much more for our money than we could get by buying the whole business … Charlie and I believe that the companies in which we invested offered excellent value, far exceeding the available in acquisition transactions, "he wrote in his 2018 Annual Report,

Earlier this year, Berkshire announced $ 10 billion investment at Occidental petroleum for Anadarko takeover and in 2017 the company acquired almost 40% Pilot Flying J. truck stop operator

Buffett will turn 90 next year, but so far there is no sign of a slowdown for a well-known investor amid thoughts about who will succeed him,

“Warren Buffett … intends to stay at the helm for the foreseeable future, and his succession plan is in place,” Gelb said.

– Michael Bloom and Eric Rosenbaum from CNBC made a report.

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